Celebrating our
core business
channels to help
clients achieve
Health, Hope &
Happiness.
2 0 0 9
a n n u a l
r e p o r t
Dear Medifast
Shareholders:
Medifast realized another record-breaking year
in 2009. Revenue increased 57% to $165.6
million—this strong top line performance, drove
our profitability as we leveraged fixed costs
and expenses with our vertically integrated
operations and more than doubled our earnings,
with an increase of 138% compared to 2008. We
attribute our growth to Medifast’s strategy of
providing the best selection of quality, portion-
controlled, weight loss products within a multi-
platform program.
Each of our three primary distribution channels,
including Take Shape for Life, Medifast Direct
Response, and our Medifast Weight Control
Centers contributed to our growth. Specifically,
Take Shape for Life, a division of Medifast, Inc.,
Bradley T. MacDonald
Executive Chairman of
the Board of Directors
Michael S. McDevitt
Chief Executive Officer
Since our founding in 1980, over 20,000 doctors
now support Medifast, and over 1 million clients
have used our products.
accounted for 61% of total revenue with a sales
In today’s competitive environment, we believe
increase of 101% to $100.4 million. Increasingly,
that Medifast’s clinically tested, physician-
the Take Shape for Life, Direct Response, and
recommended products that deliver significant
Medifast Weight Control Center channels
weight loss results represent a significant value
provide a complimentary source of support
for consumers, demonstrated by our continued
for health coaches and clients to connect and
growth and financial results. We will continue
share Medifast’s clinically proven weight loss
to focus on the investment in innovation of our
programs. Each of our sales channels provide
corporate infrastructure to reach even more
clients with the differentiated level of support
consumers in new and existing markets through
they desire to achieve their health and weight
innovative sales and marketing strategies
loss goals.
and new product introductions. We have the
Our success is the testament to the efficacy of
infrastructure and strategic plans in place
Medifast products and strength of our business
through our production and manufacturing
model, as well as superior leadership from our
capacity to take Medifast to the next level of
management team and the Board of Directors.
growth as we focus on exposing our brand to new
1
stakeholders and improving the health and well-
Coaches. In 2009, we introduced a number
being of even more Americans.
of new products to meet the demands of our
In the last year Medifast has been victimized
by unethical short sellers spreading false and
misleading information about the Company
that is without merit. Medifast has made a
formal complaint to the Securities Exchange
Commission, the Maryland Attorney General,
and the New York Stock Exchange as well as
filed a lawsuit to protect the interest of our
market, including pretzels, puffs, brownies and
a digestive health supplement. Looking to 2010,
we plan to introduce even more new products.
New tools for the Take Shape for Life team,
such as a new Business Blueprint, were also
introduced in 2009 to help our Health Coaches
grow their businesses faster and reach more
people than ever before.
shareholders.
We are truly proud of our entire organization
We will not lose sight of our corporate vision
and mission to help get America healthy. With
obesity continuing to plague America, there are
more people than ever before to help. Medifast
offers a solution for weight lost and maintenance
to meet our clients comfort level and satisfy their
weight loss goals from our three distribution
channels. Our brick and mortar Medifast
Weight Control Centers offer accountability and
personal support. Our Medifast direct, online
sales channel offers autonomy to our wholesale
for their ability to execute on our strategic
plan, despite the economic challenges we faced
in 2009. Thank you to our Valued Customers,
Vendors, Medifast Employees, Take Shape for
Life Health Coaches, Medifast Weight Control
Center Operators, Medifast Practitioners, Board
of Directors and shareholders for your continued
support of Medifast, Inc. We are very excited
about our future, and we look forward to the
delivering even stronger financial results in
fiscal 2010.
division that provides clinical monitoring so
Warmest Regards,
we have a solution for men and women, young
and old seeking help through Medifast. We
are leading the country in a health movement
and more people every day are following our
Bradley T. MacDonald
clinically proven model to realize improved
Executive Chairman of the Board of Directors
health and wellness.
Medifast is working tirelessly to unveil new
products and tools that will better support our
Michael S. McDevitt
current and prospective clients and Health
Chief Executive Officer
2
Medifast
Board of Directors
Seated from left to right: Margaret Sheetz, President and Chief Operating Officer; Sr. Catherine T. Maguire
RSM; Jeannette M. Mills; and Jerry D. Reece
Standing from left to right: Charles P. Connolly; Harvey C. “Barney” Barnum, Jr; Donald F. Reilly, OSA;
George J. Lavin, Jr., Esq; Michael S. McDevitt, Chief Executive Officer; Bradley T. MacDonald, Executive
Chairman of the Board; John P. McDaniel; Jason L. Groves Esq; Barry B. Bondroff, CPA
Not Pictured: Board member, Michael C. MacDonald
Medifast Senior Executive Team
Member: Brendan N. Connors,
Chief Financial Officer
Medifast Senior Executive
Team Member: Leo V. Williams III,
Executive Vice President
333
John
Krantz
Lost
201 lbs
Results will vary.
4
We are here for one purpose: To get America healthy
In 2010, two out of three
proven results, a unique business model,
and a clear plan for successful, long-term
Americans are over-
weight management.
weight—and half are
The Company
clinically obese. This
means that some 66%
of the men and women
in the United States are
at a higher risk for heart
disease, diabetes, stroke,
and other diseases.
Medifast’s response to the challenge of obesity
in America is aggressive and energetic, fueled
by a deep concern for the country’s state
of health. Our solutions are based on proven
thinking from the front lines of food science,
nutrition, and behavior.
Most of all, our individuals are passionately
committed. More are signing on every day
as Health Coaches, franchise owners,
corporate employees, and investors.
In an industry rife with unfulfilled promises,
Medifast stands alone with solid, clinically
Portion-controlled meal replacement-based
weight-management programs are continuing to
gain popularity. They meet consumers’ demand
for a safe and effective solution that provides
balanced nutrition, quick weight loss, and lasting
results, in a unique market where 85% of dieters
gain weight back.
In 2010, Medifast celebrates 30 years of
developing, manufacturing, and marketing
portion-controlled, nutritionally balanced meal
replacements for weight loss.
Since 1980, these products—Medifast Meals—
have established the heart of Medifast’s differ-
entiated programs that help people lose weight
quickly, easily, and safely.
55
Medifast today
individual servings that clients can eat right out
Now as it celebrates its 30th anniversary,
of the package, or mix with water and either
Medifast employs more than 300 Marylanders,
microwave or chill. Clients can choose from
and has been recommended by over 20,000
a wide variety of foods and flavors, including
doctors. Thousands of Health Coaches are
shakes, soups, stew, chili, oatmeal, scrambled
leading a revolution in wellness through Take
eggs, fruit drinks, iced teas, hot beverages, bars,
Shape For
Life®, and
our Medifast
pudding, cheese puffs, pretzel sticks, and
brownies.
Weight Control
The nutritional profile of all these Medifast
Centers® are
opening their
doors across
the nation.
Meals is similar, providing a specific balance of
protein, fiber, and other carbohydrate that are
fortified with vitamins and minerals. The formu-
lation provides clients with a feeling of fullness
to facilitate compliance and more comfortable
Approximately
weight loss.
65% of Medifast Meals are manufactured at the
Company’s headquarters in Owings Mills, MD,
and all Medifast products are made in the U.S.
Medifast distribution channels also offer
Essential1®, a line of supplements to support
areas of wellness such as cardiovascular and
digestive health.
Medifast Meals
The weight-loss phase
The Medifast 5 & 1 Plan® for weight loss is
simple. Each day, the client eats six times, once
every two to three hours. The 5 & 1 Plan® puts
the body in a safe, mild fat-burning state to
facilitate fast weight loss.
Clients choose five Medifast Meals (the “5”) and
one self-prepared Lean & Green™ Meal (the “1”),
The Medifast Program offers products with a
consisting of measured portions of lean protein
formulation that is nutritionally complete, filling
and non-starchy vegetables.
and satisfying, and with a low glycemic index,
meaning it is safe for individuals with type 2
Clients report that the plan is easy to follow,
diabetes.
with no guesswork and no counting of
carbohydrates, calories, or “points.” Medifast
Medifast Meals come in portion-controlled,
Meals are portable and take little if any
6
preparation, making the plan valuable to those with busy lifestyles.
Medifast’s licensed, registered dietitians have developed variations on
the Medifast 5 & 1 Plan® to support healthy weight loss for vegetarians,
teens, nursing mothers, seniors, people with type 2 diabetes, people
with gout, bariatric surgery patients, and those taking
prescribed anticoagulant drugs.
Transition and Maintenance phases
Up to 85% of people who lose weight on diets regain that weight within
a year, often with additional pounds.
To counteract this trend and further distinguish itself in the
marketplace, in 2010 Medifast will release a new, comprehensive,
multi-focal approach to help prevent weight regain in clients who have
reached their healthy weight goal.
The Transition protocol gradually reintroduces additional healthy foods
and increases clients’ caloric intake over the course of several weeks.
The Maintenance phase uses sound principles of proper nutrition and
portion control to effectively retrain the brain and body to be satisfied
with appropriate quantities of healthy food choices.
In this way, clients can enjoy the benefits of a healthier weight and
improved well-being indefinitely.
Best of all, millions of Americans have the chance to use Medifast
and achieve lasting weight-loss results with the support channel they
prefer: an online community, a Take Shape For Life® Health Coach, a
Medifast Weight Control Centers® counselor, or a doctor.
77
Multiple sales channels, one mission
People who are overweight or obese represent a diverse
population; there is no one method for support that works
equally well for everyone. Medifast implements its products
and programs through our distribution channels to
accommodate different needs and preferences to ensure that
as many people as possible can benefit from our products.
Medifast Direct®
Medifast Direct® is a popular choice for
self-starters who are highly motivated, and those
who may prefer to pursue their weight-loss goals
privately and independently.
In this direct-to-consumer channel, clients
order Medifast products directly through the
Company’s Website or through our in-house
contact center. The products are then shipped
directly to the client’s home.
This business is driven by an aggressive
multi-media customer acquisition strategy that
includes print, radio, and Web advertising, direct
mail, and television, as well as public relations
and social media initiatives.
8
The Medifast Direct® channel focuses on
targeted marketing programs and provides
customer support through our in-house contact
center and team of licensed, registered dietitians.
In addition, Medifast continues to build on its
solid Web technology, providing customized
meal planning and client support. Medifast’s
online community, MyMedifast, provides support
forums and a library of articles on weight loss,
health, and nutrition, as well as meal planning
tools and social media functions.
Take Shape For Life®
Take Shape For Life® is the direct selling
division of Medifast. In addition to Medifast
products, Take Shape For Life® Clients benefit
from a system designed to create lifelong health.
At the heart of this physician-led marketing
model is the Take Shape For Life® Health Coach,
who is specially trained to support clients on
the program with encouragement, education,
and mentoring.
Health Coaches are tested and qualified based
on their knowledge on Medifast products and
programs. Health Coaches may also become
certified by The Health Institute, a training
99
program developed by Medifast professionals.
Since 2003, Take Shape For Life® has been a
Beyond weight loss, Take Shape For Life® offers
a national trade association representing over
the exclusive BeSlim® lifestyle, which facilitates
200 direct selling companies doing business in
member of the Direct Selling Association (DSA),
long-term weight maintenance. Take Shape For
the United States.
Life® also shows clients how to achieve a balance
of physical, mental, and financial well-being,
To become a member, Take Shape For Life®,
which is referred to as the Trilogy of Optimal
like other active DSA member companies,
Health®.
has undergone a comprehensive and rigorous
one-year company review by DSA legal staff
In addition to the encouragement and support
that includes a detailed analysis of its company
of their Health Coach, clients of Take Shape
business plan materials.
For Life® can avail themselves of program
support calls and access to licensed, registered
Strict compliance with the DSA’s Code of Ethics
dietitians through toll-free phone access, email,
is a non-negotiable prerequisite for becoming
and Web chats.
and remaining a DSA member in good standing.
Take Shape For Life®
provides an exciting
The code upholds the DSA’s high standards of
ethics, and member companies pledge to never
engage in any deceptive, unlawful, or unethical
business practices such as pyramid or endless
chain schemes, as defined by federal, state, or
home-business opportunity
local laws.
for those clients who wish
to share their success with
others by becoming Health
Coaches themselves.
10
Medifast Weight
Control Centers®
For clients who prefer a
more structured approach
with greater personal
accountability, Medifast
Weight Control Centers® is
the ideal choice.
Medifast Weight Control Centers® is the
brick-and-mortar clinic channel of Medifast.
The Centers offer a high-touch model, including
comprehensive Medifast Programs for weight
loss and maintenance, customized patient
counseling, and InBodyTM composition analysis.
Medifast Weight Control Centers®’ local
advertising includes radio, print, television,
and Web initiatives. The Centers also benefit
from the nationally advertised brand, which
encourages walk-ins and referrals from other
Medifast business channels.
1111
Medifast Medical
Providers
Medifast Medical
Providers are those who
have implemented the
Medifast Program within
their practice. They carry
an inventory of Medifast
products and resell them
to patients.
Medifast Medical Providers provide appropriate
medical monitoring, testing, and support for
their patients who are on the Medifast Program.
More than 20,000 doctors nationwide have
recommended Medifast as a treatment for their
overweight patients since 1980.
The Company offers an additional in-house
support program to assist clients who consult
with their primary care physician. The program
includes access to licensed, registered
dietitians who provide program support and
advice through a toll-free telephone help line,
email, and Web chats.
12
highlights
W h a t m a d e
2 0 0 9
s o g r e a t
1313
New products
2009 saw several new
products, which added
variety to the Medifast
Meals lineup.
NEW Coffee House Gift Box
The original Coffee House Gift Box debuted in
2008. The updated second version of the
Medifast Coffee House Gift Box, marketed over
the 2009 – 2010 winter holiday season, offered
seven servings each of Essential1®: Calorie Burn
Cappuccino and Chai Latté. The package
included a new addition—a branded 16-oz
Pretzel Sticks and Cheese Puffs
ceramic mug—and was offered at a 10%
They taste like sweet and savory snack favorites,
discounted price.
yet these new products are complete Medifast
Meals, fully fortified, portable, and ready to eat
right out of the bag.
Essential1®: Digestive Health
This is the first of a series of supplements
inspired by Dr. A’s Habits of Health, the book
14
written by Medifast’s Medical Director and
Medifast Brownies with real
Co-founder of Take Shape For Life®, Dr. Wayne
chocolate chips
Scott Andersen. Essential1®: Digestive Health is
The newest Medifast Meal was introduced
a once-daily pack that contains a probiotic
in early 2010. Easy to mix and microwave,
capsule and an enzyme tablet. Together, these
Medifast Brownies offer clients a rich, chocolaty,
two supplements help support healthy digestion.
fresh-baked taste, as well as 24 vitamins
and minerals.
Essential1®: Digestive Health joins Essential1®:
Heart Health, Medifast’s omega-3 softgel, and
Essential1®: Calorie Burn Medifast’s metabolism-
boosting products. A melatonin supplement is
joining the lineup in 2010.
1515
DisTriBuTioN chANNels resulTs
Medifast Direct®
Medifast Direct® revenue increased 7% to $47
million as compared with $44 million in 2008,
due to more efficient advertising and the imple-
mentation of a customized Web analytics tool.
This advanced tracking system provides proper
attribution for online sales, and better
understanding of clients’ brand exposure before
purchase. The tool also supports more effective
media planning through accurate metrics and
search impact filtering. 2009 saw a 2.7:1
return on advertising spend, compared with
2.5:1 in 2008.
Improved eCommerce shopping technology and
contact center closing rates resulted in increased
average orders and lifetime customer values.
In addition, this sales channel piloted several
public relations and social media campaigns
featuring local celebrities who lost weight and
publicized their success with our products and
programs.
University of Maryland Terps Football Head
Coach Ralph Friedgen lost over 105 lbs, and
radio personalities Ed Norris and his producer
and co-host Maynard promoted Medifast on
their show as they lost weight with the
Medifast 5 & 1 Plan®.
16
Take Shape For Life®
In 2009, the number of Health Coaches
With its theme of “Revolution in
increased from 3,400 to approximately 6,000,
Health/Evolution in Business,” the 2009
driving the growth in Take Shape For Life®. The
National Convention in Scottsdale, Arizona,
channel increased revenue by 101% to $100.4
was the largest in company history, with over
million, compared with $49.8 million in 2008.
1,300 attendees.
Improved tools and training included the
A number of new business tools debuted at the
publication of Living a Longer Healthier Life,
event, including products based on requests and
the companion guide to Dr. A’s Habits of Health.
suggestions from Health Coaches working in the
The educational content of this book brings Take
field. These new business support tools included
Shape For Life® to a new level, benefiting
a new, streamlined business kit and a DVD set
individual Health Coaches and Health
for prospective clients, Health Coaches, and
Professionals as part of The Health Institute.
health care professionals.
1717
Medifast Weight Control Centers®
Medifast Medical Providers
Representing approximately 10% of the
During 2009, more than 1,500 new health care
Company’s overall revenues, the Medifast
professionals chose to implement the Medifast
Weight Control Centers® channel saw revenue
Program within their primary practice.
growth of 93% versus the same time period
last year.
As of year end, more than 20% of all active Take
Shape For Life® Health Coaches are licensed
health care professionals, which are joining Take
Shape For Life® in increasing numbers due to
the ease of the program’s efficacy, ease of
implementation, and revenue-building potential
for practices.
This coalition of allied health care professionals
represents diverse areas of expertise, including
cardiology, bariatric medicine, internal medicine,
family practice, chiropractic, psychology, and
endocrinology.
Building and shaping the knowledge base of
Take Shape For Life®, this broad base of
At the end of 2009, 12 new franchise-owned
expertise moves us closer to our mission to
Centers had opened, joining the distribution
get Americans healthy.
channel’s 27 corporate-owned Centers in Florida,
Maryland, and Texas. Throughout 2010,
Medifast remains a long-standing active
Medifast Weight Control Centers® plan to open
supporter and vendor for the American Society
an additional 13 to 15 corporate-owned locations.
of Bariatric Physicians, as well as Chairman’s
With this rapid growth in mind, Marketing
Coalition, which urges all Americans to talk to
redesigned the look and feel of Medifast Weight
their doctor about their weight goals.
Counsel members of the National Obesity Action
Control Centers® communications and Website to
better convey the Centers’ unique benefits while
aligning with the Medifast’s core branding.
18
PROFEssiONAl
FOCUs
L e a d e r s i n m e d i c a l
w e i g h t l o s s f o r
over 30 years
1919
What the doctors ordered
For many years, Medifast
Medifast’s medical
has been known as the
heritage, as well as
weight-loss program
recommendations by
recommended by over
members of the health
15,000 doctors since 1980.
care community, is
essential to Medifast’s
branding and identity.
The new “doctor count”
is appearing on all our
print, Web, and other
communications.
Due to an influx of health
care professionals getting
involved with Medifast
through both Take Shape
For Life® and the Medifast
Medical Providers
channels, the Company
can now boast a
recommendation
by more than
20,000 doctors
since 1980.
20
A world-class scientific Advisory Board
This cross-disciplinary panel of professionals reviews the
effectiveness and safety of Medifast products and
programs, and assists in developing new ones.
2009 Members:
Lawrence Cheskin, M.D., F.A.C.P.
Director of the Johns Hopkins Weight
Management Center in Baltimore, MD
Miriam Cohen, M.D., F.A.C.C.
Cardiologist and Assistant Professor at the
University of Maryland Medical School
Alison Duncan, Ph.D., RD
Associate Professor, Department of Human
Health and Nutritional Sciences at the
University of Guelph; Functional Foods Expert
Scott Kahan, M.D., M.P.H.
Instructor at the Johns Hopkins Bloomberg
School of Public Health
Debra L. Miller, Ph.D.
Director of Nutrition at The Hershey Company
Varsha Vaidya, M.D.
Assistant Professor of Psychiatry and General
Internal Medicine at the Johns Hopkins
University School of Medicine; Director of the
Obesity Psychiatry program at Johns Hopkins
Bayview Medical Center
David Allison, Ph.D.
Professor and Head, University of Alabama
at Birmingham
Kerry Stewart, Ed.D., FAHA,
FAACVPR, FACSM, FSGC
Professor of Medicine, Director, Clinical and
Research Exercise Physiology at the Johns
Hopkins University School of Medicine
21
National recognition
In 2009, Medifast, Inc was recognized for both
Medifast was also recognized by Fortune
financial and clinical achievements. Some of the
most respected financial outlets in the world noticed
Medifast’s record-breaking success as well as a
Small Business Magazine in 2009. The
publication ranked Medifast 26th on
top peer-reviewed on-line nutrition journal, which
their FSB 100 list of the America’s fastest-
further supports the effectiveness of the Medifast
growing small public companies. In 2008, Medifast
5 & 1 Plan®.
ranked 47th on the list Improvements and
recognition in the national, financial community
CNBC, a leader in national business news and
continue to augment the credibility and overall
information, ranked Medifast number
1 in their list of the Top 10 Best
Performing Weight-Loss Stocks.
market awareness of Medifast as a force to be
reckoned with.
Medifast also enjoyed another strong year locally in
Maryland. Baltimore SmartCEO, distributed
Forbes recognized Medifast’s achievements in
to business executives and top decision makers in
helping Americans regain their health by rank-
the greater Baltimore area, selected Medifast
ing the Company 16th on their list of
as one of their Future 50 Companies.
America’s 200 Best Small Companies.
This was the second consecutive year that Forbes
recognized Medifast, although Medifast appeared
85th on the list in 2008. In the article Forbes
stated, “Our list of the 200 Best Small Companies
in America begins with a search for companies
The Future 50 program recognizes the 50 fastest
growing companies in the Greater Baltimore area
based on employee and revenue growth.
Medifast’s credibility was further enhanced by the
publishing of Medifast’s 5 & 1 Plan®
that show both sales and earnings growth.
study in the Nutrition Journal. Nutrition
Candidates must have annual revenue between
Journal is an open access, peer-reviewed, online
$5 million and $750 million, be publicly traded
journal that considers manuscripts within the field
for at least a year and have a stock price no
of human nutrition. The aim of the journal is to
lower than $5.” Amid tenuous global financial
provide scientists and physicians with responsible
climates, Medifast was honored to receive this
and balanced information in order to improve
accomplishment again in 2009.
experimental designs and clinical decisions.
22
Medifast will continue to be a leader in combating the
Medifast will continue to be a leader in combating the
obesity epidemic in America.
obesity epidemic in America.
Percent of Obese (BMI > 30) in U.S. Adults1
1997
2007
vs.
No Data
<10%
10% - 14%
15% - 19%
20% - 24%
25% - 29%
> 30%
The obesity epidemic is having profound
consequences on our families, our
communities, and our nation.
Doctors and other health care professionals are limited by a system that
emphasizes reacting to disease as opposed to cultivating healthy habits
and creating wellness.
Good health is no longer a given, and there is no diet or drug that
creates the broad spectrum of health offered by good nutrition, exercise,
and other healthy habits.
Medifast empowers men and women with four distinct support channels,
clinically proven products, medically reviewed programs, and a passion
for getting America healthy.
2323
A new attitude toward health
Medifast 5 & 1 Plan® showed superior changes in
Medifast recognizes that obesity is a problem
body composition, losing five times more body fat
with a constellation of causes—social, anthropo-
and increasing their bodies’ proportion of lean
logic, neurological, endocrine, genetic, behavioral,
muscle mass compared to those on the
and others. Complex causes require a multifocal
conventional food-based plan.2
approach for sustained recovery.
Medifast is defining a comprehensive approach
What Medifast brings to the crowded
to long-term recovery from obesity, based on a
weight-loss marketplace is a success story of
new way of eating, thinking, and living.
cross-disciplinary thinking. Our best minds
create our products and programs on the basis
Simple, healthful habits (such as smaller, more
of clinical studies and a deep understanding of
frequent meals) form the basis of our behavioral
how and why obesity happens, starting with the
modification program that, together with our
brain and encompassing behavioral dynamics
superior meal replacements and our
and the food industry of our nation and world.
multi-channel delivery system, is
transforming lives.
Our results tell us we’re on the right path.
Random clinical trials conducted by third parties
continue to substantiate Medifast’s claims.
1 http://www.cdc.gov/obesity/data/trends.html
One recent randomized controlled trial
compared the Medifast 5 & 1 Plan® with a low
calorie food-based diet based on the USDA Food
2 Davis LM, Coleman C, Kiel J, Rampolla J, Hutchisen T,
Ford L, Andersen WS, Hanlon-Mitola A. Efficacy of a meal
replacement diet plan compared to a food-based diet plan
after a period of weight loss and weight maintenance: a
randomized controlled trial. Nutrition Journal 2010, 9:11.
Guide Pyramid.
Subjects in the Medifast group initially lost an
average of 12.3% of their body weight, while the
other group lost an average of 6.9%. In addition
to losing more weight, the subjects on the
24
FINANCIALS
Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
Commission File No. 000-23016
MEDIFAST, INC.
DELAWARE
13-3714405
Incorporation State
Tax Identification number
11445 CRONHILL DRIVE, OWINGS MILLS, MD
21117
Principal Office Address
Phone (410) 581-8042
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
New York Stock Exchange
25
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes X No ❏
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes ❏ No X
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 ❏
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ❏
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Large accelerated filer ❏
Accelerated filer X
Non-accelerated filer ❏
Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes ❏ No X
The aggregate market value of the voting common equity held by non-affiliates of the registrant as of
June 30, 2009, based upon the closing price of $11.46 per share on the New York Stock Exchange on
that date, was $151,000,000.
As of March 26, 2010, the Registrant had 15,398,941 shares of Common Stock outstanding.
26
Explanatory Note
In this Annual Report on Form 10-K for the year-ended December 31, 2009, we are restating
earnings for the years ended December 31, 2006, 2007, and 2008 due to an error in the SFAS No. 109,
“Accounting for Income Taxes” calculation. In general, under SFAS No. 109, deferred tax assets and
liabilities are recorded to reflect the future tax consequences attributable to the effects of differences
between the carrying amounts of assets and liabilities for financial reporting and for income tax purposes.
Due to the Company’s growth in past years, major infrastructure investments were made to include
building purchases for manufacturing, corporate offices and distribution, high speed manufacturing equip-
ment and blenders, a state of the art printing center operation, and IT systems including infrastructure
and hardware. For financial statement purposes, these assets are depreciated over the assets useful life.
However, for tax purposes, the depreciation can be accelerated which results in lower taxable income and
potential tax refunds which were realized for the years in which accelerated tax depreciation was elected
for the Company. The lower taxable income and tax refunds impacted the Company’s cash position posi-
tively and allowed for the further investment in the vertically integrated Company infrastructure build.
The resulting timing difference should have resulted in a deferred tax liability and additional income tax
provision expense in the year’s restated.
The restatements had no effect on 2009 revenues, operating income, pre-tax income, net
income or cash-flows. The restatements have no impact on the Company’s tax returns in any year.
The Company is restating for errors identified in its deferred tax accounts pertaining to (i)
differences between the income tax basis and the financial reporting basis of long-lived assets that were
not reconciled to the deferred tax balances (ii) to properly apply a net operating loss to our deferred tax
and provision for income taxes for the years ended December 31, 2001, 2002, 2003, 2004, and 2005. The
effects of these restatements are included in this Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.
The correction of the errors noted in (i) above reduced 2008, 2007, and 2006 net income by
$601,000 (.04 per diluted share), $411,000 ($.03 per diluted share), and $583,000 (.04 per diluted share),
respectively. The corrections noted in number (ii) above increased beginning of 2006 accumulated deficit by
$1,358,000.
For additional detail on the restatement please see Footnote 17, “Restatement of Financial
Statements” and “Management’s Discussion on Restatement and Restatement Impact” in Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
27
Table of contents
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Submission of Matters to a Vote of Security Holders
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
PART II
Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
PART IV
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47
52
52
52
52
53
55
56
69
70
70
70
74
93
106
108
108
109
FINANCIALS
Part i
ITEM 1. BUSINESS.
SUMMARY
Medifast, Inc. (the “Company” or “Medifast”) is a Delaware corporation, incorporated in 1993.
The Company’s operations are primarily conducted through five of its wholly owned subsidiaries, Jason
Pharmaceuticals, Inc. (“Jason”), Take Shape For Life, Inc. (“TSFL”), Jason Enterprises, Inc., Jason Properties,
LLC and Seven Crondall, LLC. The Company is engaged in the production, distribution, and sale of weight
management and disease management products and other consumable health and diet products. Medifast, Inc.’s
product lines include weight and disease management, meal replacement, and vitamins primarily
manufactured in its modern, FDA approved facility in Owings Mills, Maryland.
MARKETS
Over the past 30 years, obesity in the United States has dramatically increased. The obesity epidemic
shows no signs of slowing down, with the condition worsening as American waistlines continue expanding.
Throughout the world, approximately 1.7 billion people are overweight. The United States leads the way,
having the highest percentage of overweight adults worldwide with nearly 70% of all Americans falling within
the overweight or obese categories.
Obesity is defined as a Body Mass Index (BMI) of 30 kg/m2 or greater, whereas overweight is defined
as a BMI ranging between 25 and 30 kg/m2. According to a recent study conducted by the Centers for Disease
Control and Prevention in 2006, only four (4) states in the U.S.A. had a prevalence of obesity less than twenty
percent (20%). Twenty–two states showed a prevalence equal to or greater than twenty-five percent (25%), and
two of those states had a prevalence of obesity equal to or greater than thirty percent (30%).
Supported by a recent study published in April 2006 in the Journal of American Medical Association
entitled, “Prevalence of Obesity and Overweight in the United States”, almost 7 out of 10 adults in the U.S. are
overweight or obese, with 60 million (or about thirty percent) American adults suffering from obesity. This raises
concern among Americans because of the health implications associated with obesity, including conditions such
as type 2 diabetes, coronary heart disease, hypertension and stroke, sleep apnea and respiratory problems,
gallbladder disease, depression and certain forms of cancer.
Obesity is defined as a Body Mass Index (BMI) of 30 kg/m2 or greater, whereas overweight is defined
as a BMI ranging between 25 and 30 kg/m2. According to a recent study conducted by the Centers for Disease
Control and Prevention in 2006, only four (4) states in the U.S.A. had a prevalence of obesity less than twenty
percent (20%). Twenty–two states showed a prevalence equal to or greater than twenty-five percent (25%), and
two of those states had a prevalence of obesity equal to or greater than thirty percent (30%).
Obesity is not an age-specific condition; the Centers for Disease Control and Prevention show children
29
and adolescents are also affected. According to the CDC, the prevalence of obesity in children and adolescents
has tripled since 1976. Overweight and obese children are at an increased risk of developing health problems
such as high blood pressure, high cholesterol and type 2 diabetes.
According to the study, “Projection of diabetes burden through 2050: impact of change demography and
disease prevalence in the U.S.”, published 2001 in Diabetes Care, type 2 diabetes is expected to increase by 165%
between 2000 and 2050. A 2007 study published by the CDC shows children are now also being affected by type
2 diabetes. Obese children suffering from type 2 diabetes are at increased risk of suffering significant morbidities
as adults in the form of amputations, kidney problems, and blindness.
The primary factors contributing to obesity are well-known and preventable: unhealthy food choices
and physical inactivity. It is estimated that poor nutrition and physical inactivity account for more than 300,000
premature deaths per year in the U.S. According to the United States Department of Health and Human
Services, only 25% of adults and even fewer teenagers consume the suggested 5 or more servings of vegetables
and fruits a day. More than half of American adults fail to engage in the suggested amount of physical activity;
more than one third of young Americans fail to regularly engage in any vigorous physical activity at all.
The United States Department of Health and Human Services states Americans spend $117 billion in costs
associated with overweight and obesity, with direct medical and healthcare costs totaling $93 billion. The U.S.
weight loss market is estimated to be a $55 billion per year industry. This includes consumer spending on diet
foods, drinks and low-calorie sweeteners; health clubs and workout videos; medically supervised and commercial
weight loss programs; children’s weight loss camps; diet books; appetite suppressants and more.
Distribution Channels
Medifast Direct – In the direct to consumer channel, customers order Medifast product directly through the
Company’s website, www.choosemedifast.com, or our in-house call center. The product is shipped directly to
the customer’s home. This business is driven by an aggressive multi-media customer acquisition strategy that
includes print, radio, web advertising, direct mail and television as well as public relations and social media
initiatives. The Medifast Direct division focuses on targeted marketing initiatives and provides customer
support through its in-house call center and nutrition support team of registered dieticians to better serve its
customers. In addition, Medifast also continues to promote its use of leading web technology featuring
customized meal planning and web community components. MyMedifast is a robust online community which
provides a library of support articles, support forums, meal planning tools and social media functions,
Take Shape For Life® - Take Shape For Life is the direct selling division of Medifast. Take Shape For Life is a
physician led network of independent health coaches who are trained to provide coaching and support to clients
on Medifast programs. Health coaches are conduits to give clients the encouragement and mentoring to success-
fully reach a healthy weight. Take Shape For Life programs provide a road map to empower the individual to
take control of their health through better habits. Take Shape For Life offers the exclusive BeSlim® philosophy,
which encourages long-term weight maintenance. Take Shape For Life also moves beyond the scope of weight
loss to show customers how to achieve optimal health through the balance of body, mind, and finances. Take
30
Shape For Life uses the high quality, medically validated products of Medifast and The Habits of Health
system to create a lifelong health optimization program. In addition to the encouragement and support of a
health coach, clients of Take Shape For Life are offered a bio-network of support including program support calls
and access to registered dieticians via toll free telephone, email and web chats.
Program entrants are encouraged to consult with their primary care physician and a Take Shape For
Life Health Coach to determine the Medifast program that is right for them. Health Coaches are required to
obtain qualification based upon testing of their knowledge on Medifast products and programs. Health Coaches
may also become certified by The Health Institute, a training program developed by Medifast professionals.
Take Shape For Life is a member of the Direct Selling Association (DSA), a national trade association
representing over 200 direct selling companies doing business in the United States. To become a member of the
DSA Take Shape For Life, like other active DSA member companies, underwent a comprehensive and rigorous
one-year company review by DSA legal staff that included a detailed analysis of its company business plan
materials. This review is designed to ensure that a company’s business practices do not contravene DSA’s Code
of Ethics. Compliance with the requirements of the Code of Ethics is paramount to become and remain a
member in good standing of DSA. Accordingly, Membership in DSA by Take Shape For Life demonstrates its
commitment to the highest standards of ethics and a pledge not to engage in any deceptive, unlawful, or
unethical business practices. Among those Code of Ethics proscriptions are pyramid schemes or endless chain
schemes as defined by federal, state, or local laws. Moreover, Take Shape For Life, like other DSA member
companies in good standing, has pledged to provide consumers with accurate and truthful information regarding
the price, grade, quality, and performance of the products Take Shape For Life markets.
Medifast Weight Control Centers – The Medifast Weight Control Center is the brick and mortar clinic
channel of Medifast located in Texas, Florida and Maryland. In 2009, the Company opened seven new Medifast
Weight Control Centers and had a total of twenty – seven locations in operation at year-end. The centers offer a
high-touch model including comprehensive Medifast programs for weight loss and maintenance, customized
patient counseling, and InBody TM composition analysis. Medifast Weight Control Centers conduct local
advertising including radio, print, television and web initiatives. The centers also benefit from the nationally
advertised brand which encourages walk-ins and referrals from other Medifast business channels.
In 2008, the Company began offering the clinic model as a franchise opportunity. The Company
currently has franchisee centers located in Alabama, Arizona, California and Minnesota. At
December 31, 2009, eighteen franchise locations were in operation.
Medifast Physicians –Medifast physicians have implemented the Medifast program within their practice or
clinic since 1980. These physicians carry an inventory of Medifast products and resell them to patients. They
also provide appropriate medical monitoring, testing, and support for patients on the program. Management
estimates that more than 20,000 physicians nationwide have recommended Medifast as a treatment for their
overweight patients since 1980, and over an estimated 1 million patients have used its’ products to lose and
maintain their weight. Many Medifast physicians prefer not to carry inventory and resell products in their
offices and take advantage of the Medifast Direct or the Take Shape For Life program to support their
patient base.
31
The Company offers an additional in-house support program to assist customers that are consulting
their primary care physician. Customers have access to registered dieticians that provide program support and
advice via a toll free telephone help line, by e-mail and online chats
THE MEDIFAST® BRAND
Medifast enriches lives by providing innovative choices for lasting health through products and
programs. Medifast has been recommended by 20,000 physicians since 1980. Medifast is clinically proven
product offering programs for weight management, weight maintenance and long term health through multiple
channels of distribution. Medifast products are high quality, portion controlled meal replacement foods.
The Medifast program is suitable for individuals with type 2 diabetes and offers products with a
nutritionally complete and low glycemic formulation Portion controlled, meal replacement weight management
programs are continuing to gain popularity, as consumers search for a safe and effective solution that provides
balanced nutrition, quick weight loss and valuable behavior modification education.
Medifast Distribution channels also offer a line of Essential 1® brand supplements addressing specific
health issues such as heart and digestive health.
Clinical Research Overview
Medifast uses both clinical research studies and retrospective data analysis from its Medifast clinics as
the basis of its claim, “clinically proven.” The following abstracts include both peer-reviewed research (consisting
of prospective controlled clinical trials and retrospective studies) and in-house clinical data (studies 7 & 8).
Study 1
Reference
Davis LM, Coleman CD, Kiel J, Rampolla J, Hutchisen T, Ford L, Anderson WS, Hanlon-Mitola A. “Efficacy of
a meal replacement diet plan compared to a food-based diet plan after a period of weight loss and weight
maintenance: A randomized controlled trial.” Nutritional Journal. 2010. In Press.
Purpose
To examine the effect of Medifast’s meal replacement program (MD) on body weight, body composition, and
biomarkers of inflammation and oxidative stress among obese individuals following a period of weight loss and
weight maintenance compared to an isocaloric, food-based diet (FB).
32
Results
Weight loss at 16 weeks was significantly better in the Medifast group (MD) versus the food-based group (FB)
(12.3% vs. 6.9%), and overall greater weight loss was achieved on MD versus FB. Significantly more of the MD
participants lost ≥5% of their initial weight at week 16 (93% vs. 55%) and week 40 (62% vs. 30%). Significant
improvements in body composition were also observed in MD participants compared to FB at week 16 and week
40. At week 40, both groups experienced improvements in biochemical outcomes and other clinical indicators.
Conclusions
Our data suggest that the meal replacement diet plan evaluated was an effective strategy for producing robust
initial weight loss and for achieving improvements in a number of health-related parameters during weight
maintenance, including inflammation and oxidative stress, two key factors more recently shown to underlie our
most common chronic diseases.
Weight loss and other anthropometric results of this study were presented at Experimental Biology, 2009.
Biochemical outcomes were presented at the American Dietetic Association Food and Nutrition Conference and
Expo, 2009.
Study 2
Reference
Cheskin LJ, et al. “Efficacy of meal replacements versus a standard food-based diet for weight loss in type 2
diabetes: A controlled clinical trial.” The Diabetes Educator. 34(1):118-127; Jan/Feb 2008.
Purpose
To compare the efficacy of a portion-controlled meal-replacement diet (PCD) to a standard diet (SD) (based on
recommendations by the American Diabetes Association) in achieving and maintaining weight loss among 119
obese men and women with type 2 diabetes mellitus.
Results
The PCD group lost 2 times more body weight at 34 weeks (-7.3 ± 6.2kg vs. -3.7 ± 3.2kg) versus the SD group.
Using intention-to-treat analyses, weight loss at 34 weeks and weight maintenance at 86 weeks was signifi-
cantly better on PCD versus SD. Approximately 40% of the PCD participants lost >5% of their initial weight
compared with 12% of those on the SD. Significant improvements in biochemical and metabolic measures were
observed at 34 weeks in both groups. The retention rate and self-reported ease of adherence in the PCD group
were significantly higher throughout the study.
Conclusions
Participants using meal replacements lost twice the amount of weight and were more likely to complete the
program than SD participants. Approximately 25% of the PCD participants reduced their blood glucose-lowering
medications after the initial weight loss phase, while no participants in the SD group achieved this.
This study was published in the January/February 2008 issue of The Diabetes Educator. The peer-reviewed
journal is the official journal of the American Association of Diabetes Educators. The study was also presented at
the American Diabetes Association’s 65th Annual Scientific Session, 2005.
33
Study 3
Reference
Haddock CK, Poston WSC, Foreyt JP, DiBartolomeo JJ. “Effectiveness of Medifast supplements combined with
obesity pharmacotherapy: A clinical program evaluation.” Eating and Weight Disorders. 13:95-101; 2008.
Purpose
To evaluate the long-term impact of Medifast meal-replacement supplements (MMRS) combined with
appetite-suppressant medication (ASM) among participants who received 52 weeks of treatment as part of a
medically supervised weight-control program.
Results
Participants who completed 52 weeks of treatment experienced substantial weight losses at 12 (-9.4 ± 5.7kg), 24
(-12.0 ± 8.1kg), and 52 weeks (12.4 ± 9.2kg), and all measures were significantly different from baseline weight
(p<0.001 for all contrasts) for both true completers (n=324) and for ITT analysis (n=1,351). Fifty percent of
patients remained in the program at 24 weeks and nearly 25% were still participating at one year.
Conclusions
The combination of Medifast meal-replacement supplements plus appetite suppressant medication yielded
results that were better than those typically reported for obesity pharmacotherapy in both short- and long-term
studies, and also better than those reported for partial meal-replacement
programs.
This study was published in the June 2008 issue of Eating and Weight Disorders. Results of this study were
presented at the American Society of Bariatric Physicians’ annual meeting in May 2007.
Study 4
Reference
Davis LM, Coleman CD, Andersen WS, Cheskin LJ. “The effect of metabolism-boosting beverages on 24-hr
energy expenditure.” The Open Nutrition Journal. 2:37-41; 2008.
Purpose
To test the effect of thermogenic meal-replacement beverages (TMRB) containing 90 mg of EGCG and 100 mg of
caffeine on resting energy expenditure (REE). Thirty adults (19 women, 11 men) were stratified into 3 groups:
lean (n=10, BMI 21.5 ± 2.1); overweight/obese (OW) (n=10, BMI 29.8 ± 2.7); or weight maintainers (WM) (n=10,
BMI 28.8 ± 4.0). Following an overnight fast, baseline measurements, including REE via indirect calorimetry,
were performed. REE was repeated at 30, 60, 90, and 120 minutes after consuming a TMRB. Appetite was
assessed via visual analogue scale at baseline, 30 minutes, and 120 minutes after consuming the TMRB.
34
Results
Mean 24-hour REE was increased 5.9 ± 2.5% overall (p=0.000), 5.7 ± 3.1% among lean subjects (p=0.0002), 5.3
± 1.4% among OW subjects (p=0.000), and 6.8 ± 2.7% among WM subjects (p=0.0007). Appetite was significantly
reduced 30 minutes after consuming the TMRB (p=0.0002).
Conclusions
The findings strongly suggest TMRBs are a promising weight-control tool. Benefits of TMRB in weight control
include increases in resting energy metabolism and decreases in appetite. These decreases in energy intake and
increases in energy expenditure may translate into more sustainable weight loss and weight maintenance in
both the short- and long-term.
This study was presented as a poster session at Experimental Biology, 2008.
Study 5
Reference
Cheskin LJ, et al. “A RCT comparing balanced energy deficit diets with or without meal replacements for weight
loss and maintenance among children dieting alone or with a parent.” Johns Hopkins Bloomberg School of
Public Health, Center for Human Nutrition, Department of International Health.
Purpose
To compare the safety and efficacy of supplemental Medifast portion-controlled meal replacements (MRs) to a
USDA Food Guide Pyramid-based diet. Both weight-loss diets were 20% energy-restricted (~500 kcal deficit).
Eighty children (8-15 y.o.), BMI>95th%ile, were screened and randomized to either a MR diet (3 MRs/d during
active weight loss and 2 MRs/d during maintenance) or to the food-based diet. Subjects were further randomized
to dieting alone or with a parent.
Results
By ITT analysis, dieting alone vs. with a parent or food vs. MR made no difference in weight outcome. However,
following initial weight loss (6 mos) and 1 yr maintenance (18 mos), significant benefits were seen in the MR
group in BMI%ile (0 mos=98.8 ± 1.0, 6 mos=96.6 ± 3.2, 18 mos=96.4 ± 3.4); body fat ( 5.9% @ 6 mos, 5.3% @ 18
mos); total cholesterol ( 6.7% @ 6 mos, 5.6% @ 18 mos); LDL ( 19.8% @ 6 mos, 7.9% @ 18 mos); and triglycerides
( 23.6% @ 6 mos, 22.3% @ 18 mos). No significant between-group differences, differences in growth rates, or
adverse events were observed.
Conclusions
Among overweight 8-15 y.o. children, dieting with or without a parent, meal replacements were as safe and
effective as a food-based diet for weight loss and maintenance.
This study was presented as a poster session at Experimental Biology, 2007.
35
Study 6
Reference
Matalon V. “An evaluation of weight loss following a carbohydrate and fat restricted diet with appetite
suppressant and dietary supplementation.” The Bariatrician. 10-13; 2000.
Purpose
To assess the safety and effectiveness of a weight-loss regimen consisting of a carbohydrate- and fat restricted
diet supplemented with an appetite suppressant, a dietary supplement, and a liquid protein drink (Medifast)
in an open label trial. Baseline and 6-mos evaluations of body weight (lbs), body fat (%), BMI (kg/m2), lean body
mass, water weight, and blood pressure were performed.
Results
Of 47 patients enrolled, 24 (51%) completed six months using the dietary regimen prescribed. Data was
analyzed for all patients who were treated with the diet, as well as for the subset of patients who completed the
entire study period. At 6 mos, statistically significant differences were found for body weight (p<0.001), percent
body fat (p<0.001), BMI (p<0.001), lean body mass (p<0.001), water weight (p=0.01), and body systolic (p=0.003)
and diastolic (p<0.001) blood pressure.
Conclusions
The dietary regimen showed that a carbohydrate- and fat restricted program supplemented with a natural ap-
petite suppressant can lead to progressive weight loss of comparable value to prescribed pharmacologic agents
at the time of study. Patients in the study experienced statistically significant decreases in overall body weight,
percent body fat, BMI, lean body mass, total body water, and both systolic and diastolic blood pressure.
Study 7
Reference
Crowell MD, Cheskin LJ. “Multicenter evaluation of health benefits and weight loss on the Medifast weight
management program.” The Johns Hopkins University School of Medicine.
Purpose
To retrospectively evaluate the efficacy of a medically supervised, protein-supplemented modified program
(Medifast) for weight reduction and to evaluate the impact of weight reduction on coexisting health problems.
Results
On average, males lost 67 lbs and females lost 47 lbs during the fasting phase. The study found significant
reductions in total cholesterol and triglycerides, systolic and diastolic blood pressure, and normalized blood
pressure in hypertensive patients.
Conclusions
Medically supervised, protein-sparing meal-replacement programs offer a safe and effective means of weight
reduction and are accompanied by significant improvements in coexisting health problems.
A statistical review of patient charts, unpublished data on file. 1993.
36
Study 8
Reference
Davis LM, Cheskin LJ. “Dietary intervention using Medifast meal replacements in pre-bariatric surgery
patients.” Johns Hopkins Weight Management Center; 2006.
Purpose
N=14 severely obese patients—13 females (11 African Americans, 2 Caucasians) and 1 male (Caucasian)—with
a mean BMI of 64.14 kg/m2 (range 40.2kg/m2 to 91.7kg/m2) entered a 6-month weight-control program at the
Johns Hopkins Weight Management Center. All patients were Medicaid (Priority Partners) recipients. The
program provided a comprehensive approach to weight control focused on diet, behavior, and physical activity.
Portion-controlled meal replacements (MRs) supplied by Medifast were utilized as part of the dietary-behavior
intervention. All subjects met with a licensed dietitian and were prescribed a 1,000-1,200 kcal/day diet plan
incorporating up to 6 MRs/day. Only 1 subject chose not to incorporate meal replacements as part of a low-calorie
diet plan. The average intake of meal replacements was 2.5-3 per day through the duration of the study.
Results
After 6 months on the program, patients lost an average of 26.73 lbs (-2.86kg/m2) and 6.96% body weight,
and reported a high level of satisfaction with their diet plan. Program completers at 1 month were N=13, at 3
months N=12, and 6 months N=10.
Conclusions
A comprehensive weight management program utilizing Medifast Meal Replacements yielded significant weight
loss among pre-bariatric surgical patients.
A statistical review of patient charts, unpublished data on file. 2006.
Study 9
Reference
Tchernof A, Starling R, Turner A, et al. “Impaired capacity to lose visceral adipose tissue during weight
reduction in obese postmenopausal women with the Trp64Arg B3-adrenoceptor gene variant.” Diabetes.
49:1709-1713; 2000.
Purpose
To examine the effect of the Trp64Arg gene variant on total and visceral adipose tissue loss, and cardiovascular
risk factors in response to weight reduction among 24 obese women (age 57 ± 4 yrs) in a 13 ± 3 mos weight
reduction program of 1,200 kcal with or without the inclusion of Medifast.
Results
Whether women were carriers or noncarriers of the Trp64Arg allele, significant weight loss (-16.4 ± 5.0kg vs.
-14.1 ± 6.2kg, NS) and reductions in body fat (-10.0 ± 5.2 vs. -11.5 ± 3.9kg, NS) were observed in response to a
37
calorie-restricted program with or without Medifast. Loss of visceral adipose tissue was 43% lower in carriers of
the Trp64Arg allele compared with noncarriers (-46 ± 27 vs. -81 ± 51cm2, p=0.05).
Conclusions
This study concluded that older women carrying the Trp64Arg B3-adrenoceptor gene variant have an impaired
capacity to lose visceral adipose tissue in response to a calorie-restricted diet.
Scientific Advisory Board
In September 2008, Medifast announced the formation of its Scientific Advisory Board.
The role of the Board is to continually review the effectiveness, safety, and nutritional benefits of Medifast’s
products and programs. The team of specialists will also assist in the development of new Meals and
supplements, as well as weight-loss approaches for specific medical needs (i.e., patients with heart disease)
or lifestyles (vegetarians, etc.).
The work of this cross-disciplinary group builds on Medifast’s heritage of medically sound approaches to weight
loss, and the incorporation of leading-edge clinical research into the company’s products and programs.
Medifast Scientific Advisory Board - 2009-2010
Lawrence Cheskin, M.D., F.A.C.P.
Director of the Johns Hopkins Weight Management Center in Baltimore, MD
Miriam Cohen, M.D., F.A.C.C.
Cardiologist and Assistant Professor at the University of Maryland Medical School
Varsha Vaidya, M.D.
Assistant Professor of Psychiatry and General Internal Medicine at Johns Hopkins University School of
Medicine, Director of the Obesity Psychiatry program at Johns Hopkins Bayview Medical Center
Alison Duncan, Ph.D., RD
Associate Professor, Department of Human Health and Natural Sciences at University of Guelph, Functional
Foods Expert
Debra L. Miller, Ph.D.
Director of Nutrition at the Hershey Company
David Allison, Ph.D.
Professor and Head of the University of Alabama at Birmingham
Kerry Stewart, Ed.D., FAHA, FAACVPR, FACSM, FSGC
Professor of Medicine and Director of the Clinical and Research Exercise Physiology Program at the Johns
Hopkins University School of Medicine
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COMPETITION
There are many different kinds of diet products and programs within the weight loss industry. These
include a wide variety of commercial weight loss programs, pharmaceutical products, weight loss books, self-help
diets, dietary supplements, appetite suppressants and meal replacement shakes and bars. Some of Medifast’s
top competitors are Jenny Craig, Nutrisystems, EDiets, Herbalife, and Weight Watchers.
The Company has proven it can compete in this competitive market because its products have been
clinically tested and proven in clinical studies conducted by researchers from Johns Hopkins University and
other major institutions, the Medifast products have been safely and effectively used by customers and recom-
mended by physicians for over 30 years. Medifast has been on the cutting edge of product development with soy
based nutritional and weight management products since 1980. These products are formulated with high-quality,
low-calorie, low-fat ingredients that provide alternatives to fad diets or medicinal weight loss remedies.
The Company’s diverse multi-channel distribution strategy makes the Medifast brand available
through multiple support channels, which target different customer needs. Medifast practitioners offer Medifast
to patients through wholesale or an innovative home delivery model and some practitioners choose to prescribe
appetite suppression diet drugs to patients in conjunction with a Medifast based diet. Medifast Direct via the
website and call center serves customers with free online support and community tools and access to nutritionists
and customer service representatives. The Take Shape For Life division offers the personal support of a health
coach that is often a person who has achieved success on the Medifast program and has turned their success
into a business opportunity generating incremental revenue for the company through relationship marketing.
Medifast Weight Control Centers offer a supervised and structured model for customers who prefer more
accountability and personalized counseling on the program. The Medifast program alone is a mild ketogenic diet
that naturally suppresses appetite and eliminates hunger without other therapies for most people.
PRODUCTS
The Company offers a variety of weight and disease management products under the Medifast® brand
and for select private label customers. The Medifast line includes Medifast® 55 Shakes, Medifast® 70 Shakes,
Medifast® Plus for Appetite Suppression Shakes, Medifast® Plus for Women’s Health Shakes, Medifast® Plus
for Diabetics Shakes, Medifast® Plus for Joint Health Shakes, Medifast® Plus for Coronary Health Shakes,
Medifast Momentum Drinks, Momentum Flavor Infusers, Antioxidant Shakes, Antioxidant Flavor Infusers,
Super Omega 3, Medifast® Maintenance Bars, Medifast Crispy Bars, Medifast® Creamy Soups, Medifast®
Chicken Noodle Soup, Medifast® Chicken & Wild Rice Soup, Medifast® Beef Vegetable Stew, Medifast®
Home-style Chili, Medifast® Oatmeal, Medifast® Pudding, Medifast® Scrambled Eggs, Medifast® Hot Cocoa,
Medifast® Cappuccino, Medifast® Chai Latte, Medifast® Iced Teas, Medifast® Fruit Drinks, Medifast® Soy Crisps,
and Medifast® Crackers.
39
Medifast nutritional products are formulated with high-quality, low-calorie, and low-fat ingredients.
Many Medifast products are soy based and contain 24 vitamins and minerals, as well as other nutrients
essential for good health. The Company uses Solae® brand soy protein, which is a high-quality complete protein
derived from soybeans. Medifast also compliments its offerings with several whey-based products. Regardless
of the protein source used to make Medifast products (soy or whey), it is of the highest quality with a PDCAAS
score of 1.0. Most Medifast Products are Orthodox Union Kosher which denotes a quality standard that is above
most products in its class. Many of the Medifast Products are also designated “Hallall” by the American Islamic
Council of America.
Medifast brand awareness continues to expand through the Company’s marketing campaigns, product
development, line extensions, and the Company’s emphasis on quality customer service, technical support and
publications developed by the Company’s marketing staff. Medifast products have been proven to be effective
for weight and disease management in clinical studies conducted by researchers from the U.S. government and
Johns Hopkins Bloomberg School of Public Health.. The Company has continued to develop its sales and
marketing operations with qualified management and innovative programs. The Company’s facility in Owings
Mills, MD manufactures all powders and subcontracts the production of its Ready-To-Drink products, meal
replacement bars, crackers, soy crisps and omega 3 capsules.
NEW PRODUCTS
In 2009, the Company expanded the Medifast product line by introducing a new category of products
with our Pretzel Sticks and Cheese Puffs. These unique products offer a new twist on familiar products and offer
more on-the-go, portable options to the product line. They also fulfill the ‘crunchy’ mouth feel that some of our
customers request while they are on the Medifast program. While these products look remarkably similar to
pretzels and cheese puffs found at grocery stores, they are uniquely formulated to provide 11g of protein, 4g of
fiber, with only 3g or less of fat, 15g or less of carbohydrates and 110 Calories. These new items are fully
interchangeable with our program and can be enjoyed as a full meal (not a snack.) These new products are
available in Chili Nacho Cheese, White Cheddar Cheese, Honey Mustard Pretzel and Cinnamon Pretzel Sticks.
Medifast also launched another product aimed at optimizing health- Essential1: Digestive Health. This
product can be used as a companion product for those on the Medifast 5 & 1 Plan®, Transition, Maintenance, and
beyond. The Essential 1 Digestive Health is a dietary supplement pack that contains a custom probiotic capsule
and a natural enzyme blend tablet in one convenient, daily pack. This product was developed to help improve
digestive tract health which has been linked to improving your bodies’ ability to lose weight effectively. This
product also contains ingredients which aid in the absorption of certain nutrients and can help boost your
immune system.
MARKETING
In 2009, the Company continued to build and leverage its core Medifast brand through multiple marketing
strategies to its target audiences. Customer acquisition strategies include national advertising in print
40
magazines, television commercials, web advertising, direct mailings, radio commercials, and DJ testimonials.
In addition, the Company executed strategic public relations efforts to secure local and national editorial place-
ments to raise brand awareness. These mediums were used to target new customers by stressing Medifast’s
quick, easy and safe approach to weight management. The Company invested in two celebrity contracts with
preliminary marketing and media campaigns launching in late 2007 and extending into 2009, and added a
third celebrity in 2009 running through 2010. Direct mail campaigns, e-mail newsletters and outbound calling
programs were utilized to reactivate, encourage and support existing customers. Medifast continued to enhance
the Medifast website including adding features in the “My Medifast” community which offers meal planning,
community message boards, blogs and a robust library of information. The Company also continued to feature
customer blogs on the website for potential customers to interact with loyal Medifast customers. Late in 2007,
the Company launched an auto ship loyalty program where customers receive discounts and rewards with
automatic shipments of Medifast Meals on a monthly basis. Both the MyMedifast community enhancements
and Auto-ship programs contribute to the retention of Medifast customer through improved compliance with the
program.
SALES
The Company’s Sales division handles two primary areas:
Physician Sales - The sales team is responsible for prospecting medical accounts, clinics, hospitals,
and HMOs. During 2009, the sales team attended a number of medical professional trade shows, which
expanded Medifast’s penetration of the medical weight loss business segment.
Medifast Weight Control Centers/Franchises - The brick and mortar clinics have Counselors that
sell Medifast products and full service programs which include weekly one-on-one counseling sessions,
medical monitoring and physician oversight. Franchise sales seek qualified partners to develop
defined market territories.
MANUFACTURING
Jason Pharmaceuticals, Inc., the Company’s wholly owned manufacturing subsidiary, produces over
65% of the Medifast products in a state-of-the-art food and pharmaceutical-grade facility in Owings Mills,
Maryland. Management purchased the plant in July 2002 for $3.4 million. The Company has also invested in
increasing production capacity with the purchase of two additional manufacturing lines and a larger capacity
blender. The lines have significantly improved the Company’s production capability, while also improving its
overall efficiencies.
The manufacturing facility has the capacity for significant increases to its production output with
minimal capital expenditures. Adding additional shifts will enable the Company to produce enough products to
generate over $300 million in sales.
41
Manufacturing processes, product labeling, quality control and equipment are subject to regulations
and inspections mandated by the Food & Drug Administration (FDA), the Maryland State Department of Health
and Hygiene, and the Baltimore County Department of Health. The plant strictly adheres to all GMP practices
and has maintained its status as an “OU” (Orthodox Union) kosher-approved facility since 1982.
GOVERNMENTAL REGULATION HISTORY
The formulation, processing, packaging, labeling and advertising of the Company’s products are subject
to regulation by several federal agencies, but principally by the Food and Drug Administration (the “FDA”). The
Company must comply with the standards, labeling and packaging requirements imposed by the FDA for the
marketing and sale of foods and nutritional supplements. Applicable regulations prevent the Company from
representing in its literature and labeling that its products produce or create medicinal effects or possess drug-
related characteristics. The FDA could, in certain circumstances, require the reformulation of certain products
to meet new standards, require the recall or discontinuation of certain products not capable of reformulation, or
require additional record keeping, expanded documentation of the properties of certain products, expanded or
different labeling, and scientific substantiation. If the FDA believes the products are unapproved drugs or food
additives, the FDA may initiate similar enforcement proceedings. Any or all such requirements could adversely
affect the Company’s operations and its financial condition.
To the extent that sales of foods and nutritional supplements may constitute improper trade practices
or endanger the safety of consumers, the operations of the Company may also be subject to the regulations and
enforcement powers of the Federal Trade Commission (“FTC”), and the Consumer Product Safety Commission.
The Company’s activities are also regulated by various agencies of the states and localities in which the
Company’s products are sold. The Company’s products are manufactured and packaged in accordance with
customers’ specifications and sold under their private labels both domestically and in foreign countries through
independent distribution channels.
PRODUCT LIABILITY AND INSURANCE
The Company, like other producers and distributors of ingested products, faces an inherent risk of exposure to
product liability claims in the event that, among other things, the use of its products results in injury. The
Company maintains insurance against product liability claims with respect to the products it manufactures.
With respect to the retail and direct marketing distribution of products produced by others, the Company’s
principal form of insurance consists of arrangements with each of its suppliers of those products to name the
Company as beneficiary on each of such vendor’s product liability insurance policies. The Company does not buy
products from suppliers who do not maintain such coverage.
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EMPLOYEES
As of December 31, 2009, the Company employed 365 full-time employees, of whom 210 were engaged
in manufacturing, warehouse management, and shipping, and 155 in marketing, administrative, call center and
corporate support functions. None of the employees are subject to a collective bargaining agreement with the
Company.
INFORMATION SYSTEMS INFRASTRUCTURE
Our website, which is based on internally developed software and other third party software, is hosted
in Baltimore, Maryland at DataPoint (www.datapoint.com) co-location facility. This facility provides redundant
network connections, uninterruptible power supplies, physical and fire security and diesel generated power back
up for the equipment on which our website rely upon. Our servers and our network are monitored 24 hours a
day, seven days a week.
We use a variety of security techniques to protect our confidential customer data. When our customers
place an order or access their account information, we use a secure server (SSL) to transfer information. Our
secure server software encrypts all information entered before it is sent to our server. We have a secondary
firewall layer of security between our customer facing websites and the databases which house their information.
All customer data is protected against unauthorized access. We use PayPal, VeriSign, Chase Paymentech and
HackerSafe software to secure our credit card transactions.
OTHER MATTERS
An Independent Committee of the Board of Directors of Medifast was constituted to review the public
allegations of a third party “Convicted Felon” on his website pertaining to alleged illegal activities of Take Shape
For Life, a Direct Selling Subsidiary of Medifast Inc. Other public Direct Selling Companies have been attacked
by this individual and his network of associates using the same blueprint of allegations. These public allega-
tions were made in mid- February and were immediately followed by significant short selling and short selling
option puts that negatively impacted the Market Capitalization of Medifast. The company has demanded that
this third party take down its website information containing false information or be subject to appropriate
legal action which it did on February 15, 2010 for four days. The company has filed a formal complaint with the
Securities and Exchange commission and the Maryland Securities Commissioner. After an additional attack in
January of 2010, the company filed a Complaint with the United States District Court in San Diego, California.
43
AVAILABLE INFORMATION
All periodic and current reports, registration statements, code of conduct, code of ethics and other
material that the Company is required to file with the Securities and Exchange Commission (“SEC”), including
the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934
(the “1934 Act Reports”). These materials are available free of charge through the Company’s investor rela-
tions page at www.ChooseMedifast.com. Such documents are available as soon as reasonably practicable after
electronic filing of the material with the SEC. The Company’s Internet web site and the information contained
therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. The
Company will furnish without charge a copy of the Company’s Annual Report on Form 10-K, including the
financial statements and schedules thereto, to any person requesting in writing and stating that he or she is the
beneficial owner of Common Shares of the Company.
Requests and inquiries should be addressed to:
Investor Relations
Medifast, Inc.
11445 Cronhill Dr.
Owings Mills, MD 21117
CERTIFICATIONS
The Company’s Chief Executive Officer and Chief Financial Officer have filed their certifications as
required by the Securities and Exchange Commission (the “SEC”) regarding the quality of the Company’s public
disclosure for each of the periods ended during the Company’s fiscal year ended December 31, 2009 and the ef-
fectiveness of internal control over financial reporting as of December 31, 2009 and 2008. Further the
Company’s Chief Executive Officer has certified to the New York Stock Exchange (“NYSE”) that he is not aware
of any violation by the Company of the NYSE corporate governance listing standards, as required by Section
303A.12(a) of the NYSE listing standards.
44
EXECUTIVE OFFICERS OF THE COMPANY
Name
Age
Position
Bradley T. MacDonald
62
Executive Chairman of the Board of Directors
Michael S. McDevitt
32
Chief Executive Officer and Chief Financial Officer
Leo V. Williams
62 Executive Vice President
Margaret Sheetz
32 Chief Operating Officer and President
Brendan N. Connors
32 Vice President of Finance
Bradley T. MacDonald
Mr. MacDonald became Chairman of the Board of Medifast, Inc. on January 28, 1998. Mr. MacDonald
was previously employed by the Company as its Chief Executive Officer from September 1996 to March 2007.
In 2006, Mr. MacDonald was named “Entrepreneur of the Year” in consumer products for the State of Maryland.
Prior to joining the Company, he was appointed as Program Director of the U.S. Olympic Coin Program of the
Atlanta Centennial Olympic Games. From 1991 through 1994, Colonel MacDonald returned to active duty to be
Deputy Director and Chief Financial Officer of the Retail, Food, Hospitality and Recreation Businesses for the
United States Marine Corps. Prior thereto, Mr. MacDonald served as Chief Operating Officer of the Bonneau
Sunglass Company, President of Pennsylvania Optical Co., Chairman and CEO of MacDonald and Associates,
which had major financial interests in retail drug, consumer candy, and pilot sunglass companies.
Mr. MacDonald was national president of the Marine Corps Reserve Officers Association and retired from the
United States Marine Corps Reserve as a Colonel in 1997, after 28 years of service. He was appointed and
served on the Defense Advisory Board for Employer Support of the Guard and Reserve (ESGR.) for three years.
Mr. MacDonald serves on the Board of Directors of Stevenson University in Maryland, and the Catholic Family
Foundation Board of the Archdiocese of Baltimore,. He is also the Vice-Chairman of the Board of Directors of the
Marine Corps Reserve Toys for Tots Foundation.
Michael S. McDevitt
Mr. McDevitt the Chief Executive Officer of Medifast, Inc. Prior to joining the company in June, 2002,
he was a Senior Analyst for the Blackstone Group, a private equity group in New York City.
Medifast has continued to excel under Mr. McDevitt’s leadership, demonstrated by the company’s
recent report of its 41st consecutive quarter of profitability for the fourth quarter, 2009. Medifast continues to
see strong year over year growth, most recently experiencing 57% top line growth and over 114% profitability
growth, versus the same time period last year. Since Mr. McDevitt has assumed the role of Chief Executive
Officer, the Company has increased its market capitalization to over $300 million and enjoyed having Medifast
named number 16 on Forbes’ list of America’s Best Small Companies, a jump from 85 one year ago. Additionally,
45
Medifast was number 28 on the 2008 Fortune Small Business list of fastest-growing small public companies, up
from number 47 in 2007. Mr. McDevitt volunteers as a big brother for Big Brothers Big Sisters of Central
Maryland, fully supporting the organization’s mission of helping boys and girls grow up to be confident, caring
young adults. He is a member of the board of directors for the American Heart Association’s Baltimore region.
Additionally, Mr. McDevitt supports the efforts of the American Diabetes Association and the Toys For Tots
Foundation. He is on the board of directors of the Augustinian Press and works with several organizations of
fellow CEOs. Mr. McDevitt holds a Bachelor degree in Business Administration with a concentration in
Finance from James Madison University.
Leo V. Williams
Mr. Williams became Executive Vice President of Medifast, Inc. in January of 2004. Prior to joining
Medifast, he was a Future Vehicles Marketing Plans Director for Ford Division sport utility vehicles and pickup
trucks. A retired Marine Corps Reserve Major General, he was ordered to active duty from October 2002 to
September 2003 to serve as Deputy Director of the Marine Corps Combat Development Command. Mr. Williams
served as the Vice-Chairman of the Board, Marine Corps Toys for Tots Foundation. Currently, he serves on the
Board of Directors of the Direct Selling Association, U.S. Naval Academy Foundation, Maryland Chapter of the
American Diabetes Association, Naval Academy Alumni Association Board of Trustees, Board of Trustees for the
University of the District of Columbia, and on the Navy Mutual Aid Association Board.
Margaret Sheetz, MBA
Ms. Sheetz is the President and Chief Operating Officer of Medifast. Inc. Prior to joining the company
in 2000, she was a legal assistant with the firm of Carrington, Coleman, Sloman and Blumenthal in Dallas,
Texas. As Medifast continues to see strong year over year growth, Ms. Sheetz has provided the leadership to
drive increased operational capabilities, building a strong infrastructure of distribution, manufacturing,
information systems and human resource operations necessary to support rapid business growth. Since 2000,
she has been instrumental in building the supply chain systems that have supported the rapid growth of
Medifast. Her operational, leadership and organizational skills have contributed to the improved productivity
and professionalism of the Medifast support staff. She is actively involved in the efforts of the American
Diabetes Association, the American Heart Association and the Toys For Tots Foundation. Ms. Sheetz is also very
active with several organizations of Maryland executives. She holds a Bachelor of Arts degree from Villanova
University and received an Executive MBA from Loyola University.
Brendan N. Connors, CPA
Mr. Connors joined Medifast as the Vice President of Finance in April of 2005. Prior to joining Medifast,
Mr. Connors worked as a Senior Accountant at Wolf & Company P.C., a certified public accounting and consulting
firm in Boston, MA.
46
ITEM 1A. RISK FACTORS
The following risk factors should be considered when reading this Annual Report on Form 10-K. If any
of the events described below occurs, the Company’s financial condition and operating results could be adversely
affected.
Much of our growth and future profitability depends on the effectiveness of our advertising spent in
the Direct to consumer channel.
Our marketing expenditures may not result in increased revenue or generate sufficient awareness of
the program or the brand to the consumer. We may not be able to manage our advertising spend in a cost effective
manner thereby increasing the cost to acquire a new customer to an elevated level that will decrease profits.
We may be subject to health related claims from our customers
A customer that suffers health problems may allege that the Medifast program contributed to the
ailment. The Company is not currently the subject of any such claims; however, we would defend ourselves
vigorously against such accusations. Regardless of the ultimate outcome, defending against such claims would
be costly and could adversely affect our results of operations.
A competitor or new entrant into the market may develop a product and program similar to ours
Many of our competitors are significantly larger than us and have more financial resources to develop
new products and programs. Our business could be affected if one of our competitors or a new entrant to the
market develops similar products and programs through similar marketing channels. This could result in lower
sales as well as pricing competition which could adversely affect the Company’s results from operations.
New fad diets or pharmaceutical solutions could put us at a competitive disadvantage
The weight loss industry is subject to fad diets. The Atkins craze hit the U.S. several years ago and had
an impact on many weight loss companies. Another fad diet could sweep the nation or consumer preferences
could change. Our failure to adapt or respond quickly enough to these changes could have an adverse affect
on our results of operations. In addition, pharmaceutical companies are constantly trying to develop safe,
effective, drugs that lead to weight loss. If successful, many dieters could perceive this to be easier than the
Medifast program and this would put us at a competitive disadvantage.
Our ability to compete could be negatively affected in the event we fail to protect our brand names,
trademarks or other intellectual property
Because our business relies heavily on direct to consumer models, brand awareness is an important factor
in our sales strategy. Failure to protect our brand or maintain an image of good standing with the public could
result in a negative effect on our operations. Additionally, failure to protect our intellectual property could result in
the arrival of a similar competitor which could reduce our competitive edge or decrease our market share.
47
The business may grow too quickly for the current infrastructure to handle
If our advertising is extremely successful and our Take Shape For Life relationship marketing divi-
sion sees a large uptick in recruitment we may be unable to handle the growth from an operational perspective.
Increasing demands on our infrastructure could cause long hold times in the call center as well as delays on our
website. In addition, there could be delays in order processing, packaging and shipping. We could run out of a
majority of our inventory if growth exceeded our production capacity. If these difficulties are encountered in a
period of hyper-growth then our operating results could suffer.
Any deficiencies or shortcomings in our information technology could prevent an efficient execution
of routine business procedures
We rely heavily on our IT infrastructure to support major business components. Any disruption to the
integrity of this support structure including but not limited to; software, telecommunications, Electronic
Resource Platform, or the Information Technology architecture as a whole could severely limit our ability to
provide customers and vendors with adequate service and operating responses. In addition, our financial reporting
is directly correlated with our company-wide software Microsoft Navision 4.0. Any compromise in the veracity of
this system could severely alter the accuracy of our tracking, volumes, and general reporting including financial
statements.
A disruption in the supply of raw materials or the inability of third party manufacturing for certain
products could affect operating results
We rely heavily on our vendors to provide quality raw materials for us to utilize in our on-site manu-
facturing processes. Any disruption in the availability of these materials could potentially interrupt our ability
to provide certain products to customers in a timely manner. Also certain products are currently manufactured
through a third party. The availability of these products is prone to fluctuations dependent on the manufacturer’s
ability to secure and produce a quality product that satisfies our satisfaction standards.
Our stock price may experience volatility due to fluctuations in our operating results
Our stock price is subject to fluctuations in response to our operating results, a competitor’s operating
results, or our ability to meet stock analysts forecasts and our yearly revenue and EPS guidance. In addition,
general trends in the weight-loss industry as a whole can have an affect on our stock price. These factors may
have an adverse affect on the market price of our stock and cause it to fluctuate significantly.
Since we cannot exert the same level of influence or control over our independent health coaches
as we could were they our own employees, our health coaches could fail to comply with our policies
and procedures, which could result in claims against us that could harm our financial condition
and operating results.
48
Our health coaches are independent contractors and, accordingly, we are not in a position to directly
provide the same direction, motivation and oversight as we would if health coaches were our own employees. As
a result, there can be no assurance that our health coaches will participate in our marketing strategies or plans,
accept our introduction of new products, or comply with our health coach policies and procedures.
We can provide no assurances that the number of independent health coaches will increase or remain
constant or that their productivity will increase. We experienced a 76% increase in active independent health
coaches during 2009. The number of active independent health coaches may not increase and could decline in
the future. Independent health coaches may terminate their services at any time, and, like most direct selling
companies, we experience turnover among new independent health coaches from year to year. We cannot
accurately predict any fluctuation in the number and productivity of independent health coaches because we
primarily rely upon existing independent health coaches to sponsor and train new independent health coaches
and to motivate new and existing independent health coaches. Our operating results could be adversely affected
if we and our existing independent health coaches do not generate sufficient interest in our business to success-
fully retain existing independent health coaches and attract new independent health coaches.
Extensive federal, state and local laws regulate our business, products and direct selling program.
While we have implemented health coach policies and procedures designed to govern their conduct and to
protect the trademarks and brand of the Company it can be difficult to enforce these policies and procedures
because of the large number of health coaches and their independent status. Violations by our independent
health coaches of applicable law or of our policies and procedures in dealing with customers could reflect
negatively on our products and operations and harm our business reputation. In addition, it is possible that a
court could hold us civilly or criminally accountable based on vicarious liability because of the actions of our
independent health coaches.
We may be subject to claims that our employees are unqualified to provide weight loss counseling
Our Medifast Weight Control center division provides medical assessments and counseling to our
customers. We may be subject to claims that our employees lack the proper training and qualifications to
provide proper advice regarding weight loss. We could be subject to claims if an employee in one of our clinics
gives inappropriate weight loss advice that results in health problems. Such claims could result in damage to
our reputation and could have an affect on our operating results.
Adverse publicity associated with our products, ingredients, or sales channels, or those of similar
companies, could harm our financial condition, operating results, and stock price.
Adverse publicity, whether or not accurate, relating to the Company, our products or our operations,
our sales channels and independent health coaches could adversely impact the Company’s financial condition,
operating results, and stock price. In addition, it could lead to lawsuits or other legal challenges and could
negatively impact our reputation, the market demand for our products, or our general business.
49
Negative publicity in the weight loss industry could adversely affect our business
If the press were to come out with negative media about low-calorie diets, meal replacements, or soy
protein this could harm our business. Even if not directed at Medifast, this perception could be instilled in our
target market and cause harm to our operating results.
The loss of key personnel could adversely affect our ability to operate and result in a negative
financial condition
Certain members of our Company oversee integral components of our Company. Although we do not
anticipate the departure of any key employees including but not limited to the executive management team, we
cannot guarantee their tenure indefinitely in the future.
Our results of operations may decline as a result of a downturn in general economic conditions or
consumer confidence
Our results of operations are highly dependent on product sales and program fees. A downturn in
general economic conditions or consumer confidence and spending in any of our major markets could result in
people curtailing their discretionary spending, which, in turn, could lead to a decrease in product sales in our
Medifast Direct and Take Shape For Life divisions and a decrease in product and program fees at our Medifast
Weight Control Centers and Internet product subscriptions. Any such reduction would adversely affect our
results of operations.
Our Business is subject to regulatory and legislative restrictions
A number of laws and regulations govern our production, operation, and advertising. The FTC and
certain states regulate advertising, disclosures to consumers, privacy, consumer pricing or billing arrangements,
and other consumer matters. Our direct selling distribution channel is subject to risk of interpretation of
certain laws pertaining to the prevention of “pyramid” or “chain sale” schemes. Although we believe we are in
full compliance, should the governing body alter or enforce the law in an unanticipated way, there may be a
negative result on the company’s operations. The Company’s financial reporting is subject to various laws and
regulations as well, specifically, the Sarbanes-Oxley Act of 2002 and the SEC. These requirements demand the
Company disclose certain information and maintain specific controls to ensure fair and legal accounting prac-
tices as outlined therein. The Company has taken substantial measures to ensure compliance through routine
internal and external audits. Failure to correct any flaws in internal controls may constitute a public notification
of weakness and could have an adverse effect on our stock price. Additionally, the Company is required to main-
tain a position of good standing in regards to taxation on both a Federal and State level. Failure to comply with
federal and state regulations could result in additional taxes, fines, or interest due that could financially strain
the company. Future laws and regulations could be unforeseen and potentially have a material negative impact
on the Company. Failure to comply with any regulations of current or future authoritative entities could have a
detrimental effect on the Company’s financial standing or operating results
50
We are subject to risks associated with our reliance upon information technology systems.
Our success is dependent on the accuracy, reliability, and proper use of information processing systems
and management information technology. Our information technology systems are designed and selected in
order to facilitate order entry and customer billing, maintain health coach and Preferred Customer records,
accurately track purchases and incentive payments, manage accounting, finance, and manufacturing operations,
generate reports, and provide customer service and technical support. Although off-site data back-up is main-
tained, it is possible that an interruption in these systems could have a material adverse effect on our business,
financial condition, or results of operations.
As a manufacturer, we may be subject to product liability claims.
As a manufacturer and a distributor of products for human consumption and topical application, we
could become exposed to product liability claims and litigation. Additionally, the manufacture and sale of these
products involves the risk of injury to consumers due to tampering by unauthorized third parties or product
contamination. To date, we have not been a party to any product liability litigation We are aware of no instance
in which any of our products are or have been defective in any way that could give rise to material losses or
expenditures related to product liability claims. Although we maintain product liability insurance, which we
believe to be adequate for our needs, there can be no assurance that we will not be subject to such claims in the
future or that our insurance coverage will be adequate.
Our manufacturing activity is subject to certain risks.
We manufacture approximately 65% of the products sold to our customers. As a result, we are depen-
dent upon the uninterrupted and efficient operation of our manufacturing facility in Owings Mills, Maryland.
Those operations are subject to power failures, the breakdown, failure, or substandard performance of
equipment, the improper installation or operation of equipment, natural or other disasters, and the need to
comply with the requirements or directives of government agencies, including the FDA. There can be no assur-
ance that the occurrence of these or any other operational problems at our facility would not have a material
adverse effect on our business, financial condition, or results of operations. We are subject to a variety of environ-
mental laws relating to the storage, discharge, handling, emission, generation, manufacture, use and disposal of
chemicals, solid and hazardous waste, and other toxic and hazardous materials. Our manufacturing operations
presently do not result in the generation of material amounts of hazardous or toxic substances. Nevertheless,
complying with new or more stringent laws or regulations, or more vigorous enforcement of current or future
policies of regulatory agencies, could require substantial expenditures by us that could have a material adverse
effect on our business, financial condition, or results of operations. Environmental laws and regulations require
us to maintain and comply with a number of permits, authorizations, and approvals and to maintain and update
training programs and safety data regarding materials used in our processes. Violations of those requirements
could result in financial penalties and other enforcement actions and could require us to halt one or more
portions of our operations until a violation is cured. The combined costs of curing incidents of non-compliance,
resolving enforcement actions that might be initiated by government authorities, or of satisfying new legal
requirements could have a material adverse effect on our business, financial condition, or results of operations.
51
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns a 49,000 square-foot facility in Owings Mills, Maryland, which contains its
Corporate Headquarters and manufacturing plant. In 2003, the Company purchased a state-of-the-art 119,000
square-foot distribution facility in Ridgely, Maryland. The facility gives the Company the ability to distribute
over $300 million of Medifast product sales per year. In 2004, the Company purchased a 3,000 square foot
conference and training facility in Ocean City, Maryland. The facility will be used to conduct corporate training
meetings, Board of Director Meetings and employee morale and wellness programs. The Company has twenty-
seven leases for its corporately owned Medifast Weight Control clinics throughout Florida,Texas and Maryland.
In addition, the Company leases a building in Owings Mills, MD for corporate offices. The leases range in terms
from one to six years.
ITEM 3. LEGAL PROCEEDINGS
Medifast, Inc. filed a civil complaint on February 17, 2010 in the U.S. District Court (SD, Cal) against
Barry Minkow, his Fraud Discovery Institute, Inc., its subsidiary iBusiness Reporting, its editor William Lobdell,
Tracy Coenen, her Sequence, Inc., “Zee Yourself”, and Robert L. Fitzpatrick for defamation, violations of
California Corporation Code Sections 25400 et seq, and 17200 et seq alleging a scheme of market manipulation
of Medifast, Inc. stock by damaging the business reputation of Medifast, Inc. (MED-NYSE) and its meal replace-
ment weight loss products and organization for Defendants monetary gain. Bradley T. MacDonald, Executive
Chairman, Medifast, Inc. who is also a large shareholder joined the lawsuit individually. The suit seeks at least
$270 Million in compensatory damages, punitive damages, and ancillary relief. Medifast, Inc. also continues to
pursue its pending complaints filed in March, 2009 with the SEC, Maryland Securities Commissioner, and the
U.S. Attorney against most of these same named Defendants.
The Chapter 7 Bankruptcy Trustee for Go Fig, Inc et al Debtors filed in early 2010 an adversary civil
proceeding in the US Bankruptcy Court (ED, Missouri) against Jason Pharmaceuticals, Inc., a subsidiary of
Medifast, Inc. (MED-NYSE) and other unrelated entities seeking to recover as to each alleged preferential
payments. Jason sold product received by the Debtors and has previously filed a pending claim in the same
bankruptcy. Medifast, Inc. disputes the Trustee’s allegations and intends to vigorously defend through its local
counsel. Medifast, Inc believes any likely result would not materially affect its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
52
FINANCIALS
Part ii
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) The Company’s Common Stock has been quoted under the symbol MED since December 20, 2002.
The old symbol, MDFT, had been traded since February 5, 2001. The common stock is traded on the
New York Stock Exchange. The following is a list of the low and high closing prices by fiscal quarters
for 2009 and 2008:
Quarter Ended March 31, 2009
Quarter Ended June 30, 2009
Quarter Ended September 30, 2009
Quarter Ended December 31, 2009
Quarter Ended March 31, 2008
Quarter Ended June 30, 2008
Quarter Ended September 30, 2008
Quarter Ended December 31, 2008
2009
Low
High
4.09
4.15
9.89
19.42
2008
7.77
11.46
22.31
35.35
Low
High
3.68
4.35
4.80
3.52
4.99
6.68
8.85
6.79
(b) The quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and
may not represent actual transactions.
(c) There were approximately 176 record holders of the Company’s Common Stock as of March 26, 2010.
This number does not include beneficial owners of our securities held in the name of nominees. The
Company had no preferred holders of the Company’s stock as of December 31, 2009.
(d) No dividends on common stock were declared by the Company during 2009 or 2008. The Company
does not plan to declare a dividend in 2010.
53
On June 3, 2004, our Board of Directors authorized the repurchase of up to 500,000 shares of our
common stock. Depending upon market conditions, shares may be repurchased from time to time at prevailing
market prices through open market or privately negotiated transactions.
We are not obligated to purchase any shares. Subject to applicable securities laws repurchases may be
made at such times and in such amounts, as our management deems appropriate. The share repurchase
program may be discontinued or terminated at any time and we have not established a date for completion of
the share repurchase program. The repurchases will be funded from our available cash. As of December 31,
2009, we had purchased 135,000 shares as treasury stock through the repurchase program noted above. On
March 26, 2009 the Company repurchased 25,000 shares of common stock at an average price of $4.09 as
detailed in the table below.
The following is a summary of our stock purchases during the year ended December 31, 2009, as
required by Regulation S-K, Item 703.
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
January 1 -
December 31, 2009
25,000
$4.09
25,000
365,000
54
ITEM 6. SELECTED FINANCIAL DATA
The selected condensed consolidated financial data set forth below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as Part II,
Item 7 of this Annual Report on Form 10-K, and the consolidated financial statements and notes thereto of the
company included in Part II Item 8 of this Annual Report on Form 10-K. The historical results provided below
are not necessarily indicative of future results.
(In thousands, except per share data)
Revenue
Operating Income
Income from Continuing Operations
EPS - Basic
EPS - Diluted
Total Assets
Current Portion of long-term debt and
revolving credit
facilities
Total long-term Debt
Weighted average shares outstanding
2009
2008
2007
2006
2005
Restated
165,618
105,445
83,779
74,086
40,129
19,366
19,293
0.89
0.81
8,199
7,850
0.37
0.34
5,715
5,543
0.26
0.25
7,381
7,463
0.36
0.34
3,549
3,405
0.14
0.14
63,162
50,317
43,087
36,375
30,259
796
5,444
3,421
4,313
1,863
4,570
1,804
3,509
1,194
3,977
Basic
Diluted
13,772
14,736
13,126
14,329
12,961
13,644
12,669
13,483
12,259
12,781
55
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements which may involve known and unknown risks,
uncertainties and other factors that may cause Medifast, Inc. actual results and performance in future periods
to be materially different from any future results or performance suggested by these statements. Medifast, Inc.
cautions investors not to place undue reliance on forward-looking statements, which speak only to manage-
ment’s expectations on this date.
The following discussion should be read in conjunction with the financial information included
elsewhere in this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles. Our significant accounting policies are described in Note 2 of the consolidated financial
statements.
The preparation of these financial statements requires management to make estimates and assump-
tions 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. Management considers the
following accounting estimates to be the most critical in preparing our consolidated financial statements. These
critical accounting estimates have been discussed with our audit committee.
Revenue Recognition. Revenue is recognized net of discounts, rebates, promotional adjustments, price
adjustments, returns and other potential adjustments upon shipment and passing of risk to the customer and
when estimates of are reasonably determinable, collection is reasonably assured and the Company has no
further performance obligations.
Impairment of Fixed Assets and Intangible Assets. We continually assess the impairment of long-lived
assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be
recoverable. Judgments regarding the existence of impairment indicators are based on legal factors, market
conditions and our operating performance. Future events could cause us to conclude that impairment indicators
exist and the carrying values of fixed and intangible assets may be impaired. Any resulting impairment loss
56
would be limited to the value of net fixed and intangible assets.
Income Taxes. In the preparation of consolidated financial statements, the Company estimates income
taxes based on diverse legislative and regulatory structures that exist in jurisdictions where the Company
conducts business. Deferred income tax assets and liabilities represent tax benefits or obligations that arise
from temporary differences due to differing treatment of certain items for accounting and income tax purposes.
The Company evaluates deferred tax assets each period to ensure that estimated future taxable income will be
sufficient in character amount and timing to result in their recovery. A valuation allowance is established when
management determines that it is more likely than not that a deferred tax asset will not be realized to reduce
the assets to their realizable value. Considerable judgments are required in establishing deferred tax valuation
allowances and in assessing probable exposures related to tax matters. The Company’s tax returns are subject
to audit and local taxing authorities that could challenge the company’s tax positions. The Company believes it
records and/or discloses such potential tax liabilities as appropriate and has reasonably estimated its income tax
liabilities and recoverable tax assets.
Allowance for doubtful accounts. In determining the adequacy of the allowance for doubtful accounts,
we consider a number of factors including the aging of the receivable portfolio, customer payment trends, and
financial condition of the customer, industry conditions and overall credibility of the customer. Actual amounts
could differ significantly from our estimates.
CONSOLIDATED RESULTS OF OPERATIONS
2009 COMPARISON WITH 2008
OPERATING
Sales
Revenue increased to $165.6 million in 2009 as compared to $105.4 million in 2008, an increase of
$60.2 million or 57%. The Take Shape For Life sales channel accounted for 61% of total revenue, direct response
marketing 28%, Medifast Weight Control Centers, brick-and-mortar clinics and physician clinics 11%. Take
Shape For Life sales, which are fueled by person-to-person direct selling and successful health coaches building
their networks and supporting increased sales of $50.5 million or 101% year-over-year. The Company’s Medifast
Weight Control Center clinic division, increased sales $7.8 million or 93% compared to 2008. Same store sales
increased by 20% for Centers open greater than one year. The direct marketing sales channel, which is fueled
primarily by consumer advertising, increased revenues $3 million or 7% year-over year on $400,000 less
advertising spend.
Take Shape For Life revenue increased 101% to $100.4 million compared with $49.8 million in 2008.
Growth in revenues for the segment was driven by increased customer product sales as a result of an increase in
active health coaches. The number of active health coaches during 2009 increased to approximately 6,000
compared with 3,400 during the period a year ago, an increase of 76%. We continue to see the benefits of a
physician-lead network of coaches that are able to support their clients in their weight-loss efforts. In today’s
environment where trust and personal recommendations are becoming a more important component in
57
consumer purchasing decisions, the Take Shape For Life model of health coaches helping others to lose weight as
a result of one-on-one communication and support continues its rapid growth. . Take Shape For Life customers
who have utilized the Medifast products and programs and successfully have addressed their body weight and
health issues are increasingly choosing to become active health coaches. Becoming a health coach is a business
opportunity that has a low start up cost, does not require the holding of inventory as all orders are shipped from
the company to the end consumer. In the current economic environment, many people are looking for supple-
mental income to assist in paying the car payment or mortgage, and becoming a health coach allows for supple-
mental income in the form of commission compensation on product sales. In addition the health coach supports
customer needs by providing education on the program and assisting customers in selecting the right products
and programs using clinically proven Medifast products and protocols. Take Shape For Life has assisted
thousands of overweight and obese customers regain their health and wellbeing while creating a national
bionetwork of activist health coaches who are combating the epidemic of Obesity in America.
The Medifast Weight Control Centers, which represent approximately 10% of the Company’s overall
revenues, are currently operating in twenty seven corporate locations in Florida, Maryland, and Texas, and
eighteen franchise locations. In 2009, the Company experienced revenue growth of 93% versus the same time
period last year. Throughout 2010, the Company anticipates opening an additional 13-15 corporately owned
Medifast Weight Control Centers.
The Direct Marketing Sales division sales increased 7% to $47 million as compared with $44 million in
2008, and increase of $3 million. Due to a more effective advertising message, more targeted advertising through
extensive analytical analysis, and improved call center closing rates the company experienced a 2.7 to 1 return
on advertising spend during 2009 as compared to 2.5 to 1 in 2008. This resulted in $400,000 less advertising
spend driving an additional $3 million in sales as compared to prior year. This improvement in advertising ef-
fectiveness was a key profitability driver in 2009.
Cost of Goods Sold
Cost of revenue increased $15 million to $40.3 million in 2009 from $25.3 million in 2008. As a percent-
age of sales, gross margin decreased slightly to 75.7% from 76% in 2008. The slight decrease in gross margin is
due to manufacturing efficiencies realized from machinery in terms of labor and scrap reduction and decreased
manufacturing overhead, the company’s inventory value was reduced at year end. Due to this annual inventory
re-valuation, the company’s gross margins decreased slightly. Going forward, the company will experience gross
margin improvement due to a decrease in the cost of each unit sold and anticipates an improvement in gross
margin in 2010.
Operating Expenses
Selling, general and administrative expenses increased by $34.0 million or 47% to $105.9 million in
2009 compared to $71.9 million in 2008. As a percentage of sales, selling, general and administrative expense
decreased to 64% in 2009 from 68.2% in 2008. Take Shape For Life commission expense, which is completely
variable based upon revenue, increased by $22.4 million as the Company showed sales growth of 101% as com-
pared to 2008. Salaries and benefits increased by approximately $4.7 million in 2009. The increase includes the
hiring of additional expertise in critical areas such as Take Shape For Life and the Medifast Weight Control
58
Centers to support the strong growth in 2009 and beyond. In addition, the opening of seven new corporately
owned clinics also required the hiring of additional center managers and support staff. Areas that also experi-
enced additional staffing due to the 57% sales growth in 2009 include manufacturing, distribution, call center,
and IT. Advertising expense in 2009 was approximately $17.4 million compared to approximately $17.8 million
for the same period last year, a decrease of $400,000. Communication expense increased by $300,000. Office
expenses increased by $1.3 million and stock compensation expense increased by $1.3 million as additional
restricted shares were issued to key executives and Board members in the third and fourth quarters of 2008.
Operating expenses increased by $1.9 million which primarily resulted from additional printing expense for
our direct to consumer postcard mailings, printed materials included in each product shipment, as well as
maintenance, repairs, and supplies for our manufacturing and distribution facilities. Other operating expenses
increased by $2.6 million which included items such as depreciation, amortization, credit card processing fees,
charitable contributions, and property taxes.
Other Income/Expense
Other income/expense decreased from a $349,000 in 2008 to $73,000 at December 31, 2009. The main
driver of the decrease was a reduction in interest expense of $0.2 million.
Income taxes
In 2009, the Company recorded $7.3 million in income tax expense, which represents an annual
effective rate of 38.0%. For 2008, we recorded income tax expense of $3 million which reflected an estimated
annual effective tax rate of 38.4%. The Company anticipates a tax rate of approximately 39-40% in 2010. The
Company restated income tax expense and deferred tax accounts for the year-ended December 31, 2008 due to
an error in the Company’s SFAS No. 109, “Accounting for Income Taxes” calculation. See Footnote 17
“Restatement of Financial Statements” for a detailed description of the restatement and management discussion
on the restatement below.
Management Discussion on Restatement and Restatement Impact
We are restating earnings for the years ended December 31, 2006, 2007, and 2008 due to an error in the
SFAS No. 109, “Accounting for Income Taxes” calculation. In general, under SFAS No. 109, deferred tax
assets and liabilities are recorded to reflect the future tax consequences attributable to the effects of differences
between the carrying amounts of assets and liabilities for financial reporting and for income tax purposes. Due
to the Company’s growth in past years, major infrastructure investments were made to include building pur-
chases for manufacturing, corporate offices and distribution, high speed manufacturing equipment and blenders,
a state of the art printing center operation, and IT systems including infrastructure and hardware. For financial
statement purposes, these assets are depreciated over the assets useful life. However, for tax purposes, the
depreciation can be accelerated which results in lower taxable income and potential tax refunds which were
realized for the years in which accelerated tax depreciation was elected for the Company. The lower taxable
income and tax refunds impacted the Company’s cash position positively and allowed for the further investment
in the vertically integrated Company infrastructure build. The resulting timing difference should have resulted
in a deferred tax liability and additional income tax provision expense in the year’s restated.
The restatements had no effect on 2009 revenues, operating income, pre-tax income, net income or
cash-flows. The restatements have no impact on the Company’s tax returns in any year.
59
During the audit of the Company’s financial statement for the year-ended December 31, 2009,
Management of Medifast, Inc. was first advised by Friedman, LLP, the Company’s independent registered public
accounting firm, that an error existed in its deferred tax account balances due to timing differences resulting
between depreciation expense for tax purposes versus financial statement purposes. Those tax returns prepared
by the tax divisions of the audit firms responsible for the financial statement opinion in a given year, Bagell
Josephs, Levine & Company, LLC, resulted in reduced taxes for Medifast, Inc. for the pertinent years.
Management performed a detailed reconciliation of deferred tax accounts and the related provision
for income taxes for all tax years beginning in 2001 in order to quantify the potential balance adjustments. The
Company’s Management upon being advised by its Independent Auditor of the SFAS No. 109 calculation issue,
as part of its Sarbanes Oxley policy regarding internal controls regarding financial reporting, immediately
reported this issue to the Audit Committee which promptly initiated and conducted its review. That review on
March 16, 2010 concluded i) that Bagell, Josephs, Levine & Company, LLP (“BJL”) had merged with Friedman,
LLP effective January 1, 2010. ii) that neither Management nor the Audit Committee had been previously
notified of this audit concern by its auditors BJL either during those audits nor while preparing the quarterly
reports and tax returns with BJL Tax Accountant Services for the pertinent years iii.) that the Company from
the time of its restructuring in 1999 did not have a normalized tax rate due to the carry forward of a substantial
net operating loss iiii.) that Company management is responsible for the internal controls over the preparation
and review process for the calculation of the income tax provision which was inadequate, and led to errors in the
computation of deferred tax assets, deferred tax liabilities, and related income tax provision.
On March 29, 2010 management and the Audit Committee reviewed management’s findings and the
Audit Committee concluded that restating the consolidated financial statements for the years ended December
31, 2006, 2007, and 2008 is required. The Company is restating for errors identified in its deferred tax accounts
pertaining to (i) differences between the income tax basis and the financial reporting basis of long-lived assets
that were not reconciled to the deferred tax balances (ii) to properly apply a net operating loss to our deferred
tax and provision for income taxes for the years ended December 31, 2001, 2002, 2003, 2004, and 2005.
The effects of these restatements are included in this Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.
The correction of the errors noted in (i) above reduced 2008, 2007, and 2006 net income by $601,000 (.04
per diluted share), $411,000 ($.03 per diluted share), and $583,000 (.04 per diluted share), respectively. The
corrections noted in number (ii) above increased beginning of 2006 accumulated deficit by $1,358,000.
See Footnote 17 “Restatement of Financial Statements” for a detailed description of the restatement.
60
The cumulative affect of the restatements for years December 31, 2006, 2007, and 2008 do not have a
material impact on the financial condition of the Company in the opinion of Management and the Audit Committee
as illustrated by key balance sheet ratios on the December 31, 2009 balance sheet as presented below:
Consolidated Balance Sheet
For the Year Ended December 31, 2009
(Unaudited)
As Previously
Reported
(Audited)
As Restated
Total Current Assets
Total Assets
Total Current Liabilities
Total Liabilities
Total Stockholder's Equity
Total Liabilities and Shareholder's Equity
Key Balance Sheet Financial Ratios
For the Year Ended December 31, 2009
34,967,000
64,140,000
5,764,000
11,208,000
52,932,000
64,140,000
34,730,000
62,755,000
6,183,000
13,180,000
49,575,000
62,755,000
Current Ratio
Quick Ratio
Debt to Equity Ratio
Return on Equity
Return on Assets
6.1 to 1
4.1 to 1
.12 to 1
22.6%
18.7%
5.6 to 1
3.8 to 1
.12 to 1
24.0%
19.0%
Net income
Net income was $12.0 million in 2009 as compared to $4.8 million in 2008, an increase of 147%. The
improved profitability in 2009 is due to sales growth in the Take Shape For Life division Medifast Weight
Control Centers, and direct Marketing sales channel as well as improved advertising effectiveness in the
Medifast Direct Marketing sales channel, gross margin improvement as well as leveraging the fixed costs
associated with our vertically-integrated support structure.
SEGMENT RESULTS OF OPERATIONS
Segments
Sales
% of Total
Sales
% of Total
Sales
% of Total
Net Sales by Segment as of December 31,
2009
2008
2007
Medifast
All Other
Eliminations
Total Sales
150,037,000
91%
97,116,000
92%
78,861,000
15,581,000
8,329,000
9%
0%
8%
0%
4,918,000
94%
6%
0%
165,618,000
100%
105,445,000
100%
83,779,000
100%
61
2009 vs. 2008
Medifast Segment: The Medifast reporting segment consists of the sales of Medifast Direct, Take Shape
For Life, and Doctors. As this represents the majority of our business this is referenced to the “Consolidated
Results of Operations” management discussion for 2009 vs. 2008 above.
All Other Segment: The All Other reporting segment consists of the sales of Medifast Weight Control
Corporate Centers, and Medifast Weight Control Franchise Centers. Sales increased by $7.3 million, or 87%
year-over year due to the opening of seven new centers throughout 2009, a 20% increase in the same store sales
for Centers open for greater than one year, and the launch of the franchise opportunity in 2009. The Company
is continuing to focus on improved advertising effectiveness, improved closing rates on walk-in sales, as well as
the hiring of more experienced clinic personnel. At the end of 2009, there were twenty seven corporately owned
centers opened as compared to twenty centers at the end of 2008. The company has eighteen franchise centers
in operation. In 2010, the Company plans on opening an additional 13-15 corporately owned Medifast Weight
Control Centers.
2008 vs. 2007
Medifast Segment: The Medifast reporting segment consists of the sales of Medifast Direct, Take Shape
For Life, and Doctors. As this represents the majority of our business this is referenced to the “Consolidated
Results of Operations” management discussion for 2008 vs. 2007 above.
All Other Segment: The All Other reporting segment consists of the sales of Medifast Weight Control
Corporate Centers, and Medifast Weight Control Franchise Centers Sales increased by $3,411,000 year-over
year due to the opening of ten new centers throughout 2008, including eight centers in Houston, TX and two
centers in Dallas, TX. The Dallas, TX market continues to mature with the average clinic generating approxi-
mately $50,000 per month in sales. The Company is continuing to focus on improved advertising effectiveness,
improved closing rates on walk-in sales, as well as the hiring of more experienced clinic. At the end of 2008,
there were twenty corporately owned centers opened as compared to ten centers at the end of 2007. In addition,
the Company began franchising the Medifast Weight Control Center model in 2008. At the end of 2008, there
were five franchise centers in operation.
Net Profit by Segment as of December 31,
(Restated)
(Restated)
2009
2008
2007
Segments
Profit
% of Total
Profit
% of Total
Profit
% of Total
Medifast
All Other
Eliminations
Net Profit
13,275,000
(1,311,000)
11,964,000
111%
-11%
0%
100%
7,503,000
(2,669,000)
4,834,000
155%
-55%
0%
100%
5,526,000
(2,100,000)
3,426,000
161%
-61%
0%
100%
62
2009 vs. 2008
Medifast Segment: The Medifast reporting segment consists of the profits of Medifast Direct, Take
Shape For Life, and Doctors. As this represents the majority of our business this is referenced to the “Consolidated
Results of Operations” management discussion for 2009 vs. 2008 above. See footnote 16, “Business Segments” for
a detailed breakout of expenses.
All Other Segment: The All Other reporting segment consists of the profit or loss of Medifast Weight
Control Centers, Medifast Weight Control Franchise Centers, and corporate expenses related to the parent
company operations. Year-over-year, the loss in the All Other segment decreased by $1.4 million. The Medifast
Weight Control Centers and Franchise Centers showed an increase in net profitability year-over-year of $2.5
million. The increase in profitability was due to opening of ten new corporately owned centers in 2008, seven
new centers in 2009, and opening additional franchisee centers throughout 2009. The increase in the total
number of corporate clinics to twenty seven, eighteen operating franchise centers, and improvements in same
store sales year-over-year led to additional sales and profitability. Medifast Corporate expenses increased by
$1.1 year-over-year. Corporate expenses include items such as auditors’ fees, attorney’s fees, stock compensa-
tion expense and corporate governance related to NYSE, Sarbanes Oxley, and SEC regulations. See footnote 16,
“Business Segments” for a detailed breakout of expenses.
2008 vs. 2007
Medifast Segment: The Medifast reporting segment consists of the profits of Medifast Direct, Take
Shape For Life, and Doctors. As this represents the majority of our business this is referenced to the “Consolidated
Results of Operations” management discussion for 2008 vs. 2007 above. See footnote 16, “Business Segments” for
a detailed breakout of expenses.
All Other Segment: The All Other reporting segment consists of the losses of Hi-Energy, Medifast
Weight Control Centers, and corporate expenses related to the parent company operations. Year-over-year,
the loss in the All Other segment increased by $569,000. The Hi-Energy and Medifast Weight Control Centers
showed an increase in net profitability year-over-year of $339,000. The increase in profitability was due to
improved profitability in established centers. During the year, ten new centers were opened and should have a
positive impact on 2009 earnings. Medifast Corporate expenses increased by $908,000 year-over-year.
Corporate expenses include items such as auditors’ fees, attorney’s fees, Board of Director expenses, investor
relations, corporate consulting, and corporate outings. In 2008, the Company had additional legal expenses
associated with the Sotomayor legal action that resulted in a $200,000 one time charge to earnings in the fourth
quarter of 2008. In addition, the Company had an increase in realized losses on equity securities in its invest-
ment account in the fourth quarter of 2008 due to the weakness in the stock market. See footnote 16, “Business
Segments” for a detailed breakout of expenses.
63
Contractual Obligations and Commercial Commitments
As of December 31, 2009, our principal commitments consisted of obligations for variable and fixed rate
loans detailed in Note 12 of the financial statements, operating leases for corporately owned Medifast Weight
Control Centers detailed in Note 9 of the financial statements, and copier equipment contracts for our printing
operation that support our marketing efforts.
The Company has the following contractual obligations as of December 31, 2009
Contractual Obligations
Total Debt
Operating Leases
Copier Equipment Service
Contracts
2010
2011
2012
2013
2014 Thereafter
796,000
796,000
796,000
1,112,000
1,085,000
1,002,000
1,062,000
1,031,000
964,000
566,000
553,000
758,000
257,000
3,029,000
249,000
412,000
294,000
–
Total contractual obligations
2,970,000
2,912,000
2,762,000
1,877,000
918,000
3,323,000
LIQUIDITY AND CAPITAL RESOURCES
The Company had stockholders’ equity of $49.6 million and working capital of $28.6 million on
December 31, 2009 compared with $35.2 million and $12.6 million at December 31, 2008, respectively. The $14.4
million net increase in stockholder’s equity reflects $12.0 million in 2009 profits as well as equity transactions as
outlined in the “Consolidated Statement of Changes in Stockholders’ Equity and accumulated other comprehensive
income (loss).” The Company’s cash and cash equivalents position increased from $1.8 million at December 31,
2008 to $12.7 million at December 31, 2009. The $10.9 million increase was mainly due to the increased profits
of $12.0 million as well as a $2.6 million decrease in inventory, and a reduction in capital spending. These were
offset by a $3.2 million decrease in our line of credit.
The Company currently has no off-balance sheet arrangements.
In the year ended December 31, 2009 the Company generated cash flow of $20,313,000 from operations,
primarily attributable to higher operating income. Net changes in operating assets and liabilities increased
cash flow by $860,000. The total use of cash from operations was $1.7 million. Uses of cash include an increase
in prepaid expenses of $1,155,000, increase in accounts receivable of $228,000, a decrease in accounts payable
of $162,000, a decrease in income taxes payable, and a increase in deferred compensation and other assets of
$110,000. This was offset by sources of cash during 2009 from a decrease in inventory by $2.6 million.
64
Inventory decreased due to increased inventory turns and a reduction of our days on hand.
In the year ended December 31, 2009, net cash used in investing activities was $7,932,000, which
primarily consisted of the purchase of property and equipment. The increase in property and equipment relates
to the building of a large amount of infrastructure in 2009 to support growth. This included the opening of
seven new Medifast Weight Control Center locations, development of a point-of-sale system for the Medifast
Weight Control Centers, continued development of a new web shopping platform for the direct response
segment, new software system for our Take Shape For Life division, ERP enhancements, IT infrastructure to
support new systems, phone system upgrades, and leasehold improvements to manufacturing and distribution
facilities to support future growth.
In the year ended December 31, 2009, financing activities used $1,514,000 in cash flow. Sources of cash
included an increase in long term debt $1.7 million, a decrease in notes receivable - $170,000, and issuance of
common stock, options and warrants - $214,000. This was offset by a use of cash in the repayment of the line
of credit - $3.2 million, the purchase of treasury stock - $102,000, and a fair value adjustment for stock
compensation tax benefit - $303,000.
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 cash flow from financing activities.
There are no current plans or discussions in process relating to any material acquisition that is
probable in the foreseeable future.
2008 COMPARISON WITH 2007
OPERATING
Revenue:
Revenue increased to $105.4 million in 2008 as compared to $83.8 million in 2007, an increase of $21.6
million or 26%. The Take Shape For Life sales channel accounted for 47% of total revenue, direct response
marketing 42%, Medifast Weight Control Centers, brick-and-mortar clinics and Physicians 11%. Take Shape For
Life sales, which are fueled by person-to-person recruiting and support increased by 79% year-over-year. The
Company’s Medifast Weight Control Center clinic division , increased sales by 68% as compared to 2007 due to
the opening of new clinics in 2008. The direct marketing sales channel, which is fueled primarily by consumer
advertising, decreased revenues by approximately 6% year-over year on less advertising spend. The Company’s
doctor’s sales decreased by 24% compared to 2007 due to certain doctors transitioning to the professional
division of Take Shape For Life.
The Take Shape For Life division grew 79% year-over-year. This growth can largely be attributed to the
65
tools and training that led to an increase in the ability of the division to both promote growth in recruiting of
health coaches and acquisition of clients, as well as better supporting this growth as it occurs. This continued
investment proved to be a large part of the current growth trends in Take Shape For Life sales, as well as the
number of active health coaches and clients. The growth in this segment correlates directly to the increase in
health coaches, which began to accelerate following our National Convention in July 2008. The number of active
health coaches grew 84% to 3,400 at the end of the fourth quarter of 2008 as compared to 1,850 for the same
time period in 2007. The Company completed our 2008 National Convention in Orlando, FL on July 26th, 2008
where approximately 750 health coaches participated, an increase of nearly 88% from prior year. The individuals
that attended the event attended workshops and heard lectures by accredited individuals in the areas of recruiting,
product and nutrition knowledge, and business skills.
The Medifast Weight Control Centers, which represent approximately 8% of the Company’s overall
revenues, are currently operating in twenty locations in Dallas, Houston, and Orlando. In 2008, the Company
experienced revenue growth of 68% versus the same time period last year. The average monthly revenue per
clinic also witnessed growth of 6%, averaging $38,000 per clinic in 2008 as compared to $36,000 in 2007. In the
expanding Dallas, TX market, the average monthly revenue per clinic is approximately $50,000. In the esti-
mated $40 billion weight loss and health living industry, the brick and mortar clinic model has always made
up a significant portion of overall sales. The recent growth in the Medifast Weight Control Centers has proven
that the model is in high demand from a select portion of the weight loss consumers. Throughout the year, the
Company invested in the infrastructure of its clinic model. The major aspects of the investment in this division
included an expanded support team, the creation of a point of sale system, a robust customer data tracking
system, and finalizing the franchise opportunity documentation. During 2008, the Company opened eight addi-
tional corporately owned clinics in the Houston, TX market and two additional centers in the Dallas, TX market.
On February 18, 2008, the Company announced that it has sold its first franchise of Medifast Weight
Control Centers. The Company sold the rights to open four clinics in the Greater Baltimore Metropolitan Area.
The franchisee also has the rights to open four additional Medifast Weight Control Centers in the Baltimore
area over the next two years, bringing the total to eight locations. On June 3, 2008 the Company announced
that it sold the rights to open four Medifast Weight Control Centers in Southern California and three Medifast
Weight Control Centers in Central California to two different local business operators. On October 8, 2008, the
Company announced the opening of its first franchise clinic in the Baltimore, MD area. In December 2008, three
Medifast Weight Control Center franchise locations opened in Southern California and one location opened in
Central California. At December 31, 2008, five franchise locations were in operation.
Costs and Expenses
Cost of revenue increased $3.9 million to $25.3 million in 2008 from $21.5 million in 2007. As a
percentage of sales, gross margin increased to 75.9% in 2008 from 74.4% in 2007. The margin improved due to
efficiencies gained from new machinery purchases in prior year, new shipping rules that resulted in additional
shipping revenue from customers netting against shipping expense, as well as a price increase on July 1, 2008.
Operating expenses increased by $950,000 which primarily resulted from additional printing expense for our
direct to consumer postcard mailings and Take Shape For Life printed material, as well as maintenance, repairs,
and supplies for our manufacturing and distribution facilities.
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Operating Expenses
Selling, general and administrative expenses increased by $15.3 million as compared to 2007. Take
Shape For Life commission expense, which is completely variable based upon revenue, increased by approxi-
mately $10.1 million as the Company showed sales growth of 79% as compared to 2007. Salaries and benefits
increased by approximately $2 million in 2008. The increase includes the hiring of additional expertise in critical
areas such as Take Shape For Life and the Medifast Weight Control Centers to support the strong growth in
2008 and beyond. Also, additional personnel were hired in the call center during the first and second quarters of
2008 as the Company brought the outsourced Take Shape For Life call center in-house early in the second quar-
ter of 2008. Going forward, savings will be realized on communication expense as a result of bringing the call
center in-house. The opening of eight new corporately owned clinics in the Houston, TX market and two in the
Dallas, TX market also required the hiring of additional center managers and support staff. Advertising expense
in 2008 was approximately $17.8 million compared to approximately $18.4 million for the same period last year,
a decrease of $600,000. Communication expense decreased by $200,000 as a result of the Take Shape For Life
call center moving in-house during the second quarter of 2008. Other expenses increased by $2.4 million which
included items such as depreciation, amortization, credit card processing fees, charitable contributions, and
property taxes. Office expenses increased by $300,000 and stock compensation expense increased by $225,000 as
additional restricted shares were issued to key executives and Board members in the third and fourth quarters
of 2008.
Other Income/Expense
Other expense increased from a $172,000 in 2007 to $349,000 at December 31, 2008. The $177,000 increase in
other expense resulted primarily from realized losses of $216,000 on the Company’s equity investment portfo-
lio managed by Merrill Lynch due to the weakness of the stock market in 2008. Other income/expense consists
of interest expense on debt, gains or losses on the sale of equity investments, dividends and interest on equity
and bond investments, and interest payments received on the CCS note receivable. In 2007, the Company also
realized other income when it exercised a stock warrant from a former business partner, and realized a loss on
disposal of assets relating to the closing of three Medifast Weight Control Centers.
Income taxes
In 2008, we recorded $3 million in income tax expense which represents an effective rate of 38.4%. In
2007, we recorded $2.1 million in income tax expense, which represents an annual effective rate of 38.22%. The
Company restated income tax expense and deferred tax accounts for the years-ended December 31, 2008 and
2007 due to an error in the Company’s SFAS No. 109, “Accounting for Income Taxes” calculation. In general,
under SFAS No. 109, deferred tax assets and liabilities are recorded to reflect the future tax consequences
attributable to the effects of differences between the carrying amounts of assets and liabilities for financial
reporting and for income tax purposes. Due to the Company’s growth in past years, major infrastructure invest-
ments were made to include building purchases for manufacturing, corporate offices and distribution, high speed
manufacturing equipment and blenders, a state of the art printing center operation, and IT systems including
infrastructure and hardware. For financial statement purposes, these assets are depreciated over the assets use-
ful life. However, for tax purposes, the depreciation can be accelerated which results in lower taxable income and
potential tax refunds which were realized for the years in which accelerated tax depreciation was elected for the
Company. The resulting timing difference should have resulted in a deferred tax liability and additional income
tax provision expense in the year’s restated. See Footnote 17 “Restatement of Financial
67
Statements” for a detailed description of the restatement.
Net income
Net income was $4.8 million in 2008 as compared to $3.4 million in 2007, an increase of 41%. The
improved profitability during 2008 is due to sales growth in the Take Shape For Life division and Medifast
Weight Control Centers, and gross margin improvement.
LIQUIDITY AND CAPITAL RESOURCES
The Company had stockholders’ equity of $35.2 million and working capital of $12,.6 million on December
31, 2008 compared with $30.1 million and $8 million at December 31, 2007, respectively. The $5.1 million net
increase in stockholder’s equity reflects $4.8 million in 2008 profits as well as equity transactions as outlined in
the “Consolidated Statement of Changes in Stockholders’ Equity and accumulated other comprehensive income
(loss).” The Company’s cash and cash equivalents position decreased from $2.2 million at December 31, 2007
to $1.8 million at December 31, 2008. The decrease is due to large inventory purchases in the fourth quarter of
2008 to include ten new meal replacement bars as well as an increase in inventory levels in preparation for the
“diet” season beginning in January 2009. In addition, the Company’s capital expenditures increased by approxi-
mately $2.3 million in 2008 as compared to 2007. In 2008, capital expenditures included the opening of ten new
Medifast Weight Control Centers, development of a point-of-sale system for the Clinics, development of a new
web shopping platform for the direct response segment, new software system for our Take Shape For Life divi-
sion, ERP enhancements, and phone system upgrades.
In September 2007, Medifast, Inc.’s wholly owned subsidiary Jason Pharmaceuticals, Inc. increased its
Secured Line of Credit from $5 million to $7.5 million and moved the line of credit from Mercantile Safe-Deposit
and Trust to Merrill Lynch. The line of credit is at LIBOR plus 1.3 percent. The increased line may be used to
finance fixed assets, advertising, and inventory of Medifast, Inc. The Company currently has no off-balance sheet
arrangements.
In the year ended December 31, 2008 the Company generated cash flow of $5,496,000 from operations,
primarily attributable to higher operating income. This was offset by net changes in operating assets and
liabilities that decreased cash flow by $4,889,000. The total use of cash from operations was $6,757,000. The
largest use of cash was for the purchase of inventory. During 2008, inventory increased by $4.7 million.
Inventory increased due to our increased sales, introduction of ten new meal replacement bars late in the fourth
quarter of 2008 as well as the typical fourth quarter inventory build-up in order to prepare for “diet season” in
the first quarter of 2009. Additional uses of cash included an increase in prepaid expenses and other current
assets of 438,000, increase in other assets of $251,000, and a reduction in income taxes payable of $700,000. This
was offset by sources of cash from a decrease in accounts receivable - $43,000, decrease in deferred
compensation - $282,000, and an increase in accounts payable - $850,000.
In the year ended December 31, 2008, net cash used in investing activities was $7,313,000, which pri-
marily consisted of the purchase of property and equipment. The increase in property and equipment relates to
the building of a large amount of infrastructure in 2008 to support growth. This included the opening of ten new
68
Medifast Weight Control Center locations, development of a point-of-sale system for the Medifast Weight Control
Centers, development of a new web shopping platform for the direct response segment, new software system for
our Take Shape For Life division, ERP enhancements, IT infrastructure to support new systems, phone system
upgrades, and leasehold improvements to manufacturing and distribution facilities to support future growth.
In the year ended December 31, 2008, financing activities generated $1,463,000 in cash flow. Sources of
cash included funds drawn from the line of credit - $1.6 million, a decrease in notes receivable - $132,000, and
issuances of warrants and options exercised with cash - $32,000. This was offset by a use of cash in the
repayment of long term debt - $264,000.
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
cash flow from financing activities.
There are no current plans or discussions in process relating to any material acquisition that is
probable in the foreseeable future
SEASONALITY
The Company’s weight management products and programs have historically been subject to season-
ality. 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 did not experience the same degree of seasonality in 2009.
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 well as the growth of our Take Shape For
Life division. Our annual convention takes place in July of each year and the division has experienced
significant growth in the second half of the year after the convention. As consumers continue to increase their
association of nutritional weight loss programs with overall health, seasonality will continue to decrease.
INFLATION
To date, inflation has not had a material effect on the Company’s business.
ITEM 7A. 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 has limited expo-
sure to market risks related to changes in interest rates. The principal risks of loss arising from adverse changes
69
in market rates and prices to which the Company and its subsidiaries are exposed relate to interest rates on
debt. Since nearly all of our debt is variable rate based, any changes in market interest rates will cause an equal
change in our net interest expense. At December 31, 2009, there was $6.2 million of variable interest loans
outstanding which is subject to interest rate risk. Interest rates on our variable rate loans ranged from 1.54% to
2.74% for the year ended December 31, 2009. Each 100 basis point increase in the bank’s LIBOR rates relative
to these borrowings would impact interest expense by $62,000 over a 12-month period.
ITEM 8. FINANCIAL STATEMENTS.
The information required by this item is set forth on pages 54 to 76 hereto and incorporated by
reference herein.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
There were no disagreements with the Company’s independent auditors, regarding accounting and
financial disclosures for the fiscal year ending December 31, 2009.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
In accordance with Exchange Act Rules 13a-15(e), we carried out an evaluation, under the supervision
and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the
end of the period covered by this report. Based on the material weakness in our internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) described below, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as
of December 31, 2009.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. Internal control over financial reporting is a process to provide reasonable assur-
ance regarding the reliability of our financial reporting for external purposes in accordance with accounting
principles generally accepted in the United States of America. Internal control over financial reporting includes
maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable
assurance that transactions are recorded as necessary for preparation of our financial statements; providing rea-
sonable assurance that receipts and expenditures of company assets are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company
assets that could have a material effect on our financial statements would be prevented or detected on a timely
basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide
absolute assurance that a misstatement of our financial statements would be prevented or detected.
70
Management conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded
that the Company’s internal control over financial reporting was not effective as of December 31, 2009, due to
the existence of a material weakness, as described below.
In the course of making our assessment of the effectiveness of internal control over financial
reporting, we identified a material weakness in our internal control over financial reporting. The preparation
and review process for the calculation of the tax provision was inadequate, which led to errors in the
computation of deferred tax assets, deferred tax liabilities, and related income tax provision.
As a consequence of that determination, we have implemented a procedure designed to detect or
prevent this error from occurring in the future. In February 2010, the Company hired a CPA in-house with
extensive experience in financial reporting and SFAS No. 109, “Accounting for Income Taxes.” In addition, on
a quarterly basis the company will have an outside tax advisor review management’s tax provision calculations.
We have discussed this action with our audit committee and believe that such enhanced procedure will
prospectively mitigate this material weakness.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2009,
was audited by Friedman, LLP, our independent registered public accounting firm, as stated in their report
appearing below.
Changes in our Internal Control
There have been no changes in the Company’s internal controls over financial reporting (as such term
is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the last fiscal quarter to which this
report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting, except as described below. We identified a material weakness in our internal
control over financial reporting and have described the changes to our internal controls over financial reporting
designed to remediate this material weakness.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls or our
internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, within Medifast, Inc. have been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls
can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by man-
agement override of the controls. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, controls may become inadequate because of changes
71
in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be
detected.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Medifast, Inc.
Owings Mills, Maryland
We have audited Medifast Inc.’s internal control over financial reporting as of December 31, 2009, based
on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Medifast, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
72
A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there
is a reasonable possibility that a material misstatement of the company’s annual financial statements will not
be prevented or detected. The following material weakness has been identified and included in management’s
assessment:
Accounting for Income taxes
This material weakness was considered in determining the nature, timing and extent of audit tests
applied in our audit of the 2009 consolidated financial statements and the adjustments described in Note 17
that applied to restate the 2008 and 2007 financial statements.
In our opinion, because of the effect of the aforementioned material weakness on the achievement of the
objectives of the control criteria, Medifast, Inc. and subsidiaries, has not maintained effective internal control
over financial reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Oversight Board
(United States), the consolidated balance sheet of Medifast, Inc. and subsidiaries as of December 31, 2009 and
the related consolidated statements of operations, stockholders’ equity and other comprehensive income, and
cash flows for the year ended December 31, 2009 and our report dated March 29, 2010 expressed an unqualified
opinion thereon.
/s/Friedman LLP
Marlton, New Jersey
March 29, 2010
73
FINANCIALS
Part iii
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Medifast, Inc. has recruited a Board of Directors who reflect the values and ethics of our company and
who can contribute to building long term shareholder value. Medifast Directors are persons of integrity, business
accomplishment, and diverse backgrounds able and willing to collaboratively work together and provide their
business experience and insight to guide and oversight the strategic direction of the company. In addition, they
provide valuable input into the operational plans of the company to insure that it successfully executes its
business plan and maintains the core values which protects its customers, employees and shareholders. In
The selection of the company’s directors is driven by the needs of the business and the specific oversight skills
needed to support the business objectives of Medifast.
The individual talents of the Directors chosen allow them to closely study the aspect of Company opera-
tions and business model aligned with their area of expertise to identify areas of potential risk to the Company.
Then on Committees they collectively draw on their extensive executive and business experience to determine if
any risk is material to the Company. Then, as a Board, they determine what should be done to deal with the risk
so it is not material to the Company.
Directors have been selected from many community organizations and networks in which the company
and or its executives participate. Medifast is privileged to have qualified directors who were selected because of
their business acumen, experience and their academic accomplishments. In addition, some of our Directors have
a record of public service in the US Military, Government Service or with a Non Profit Organization. Medifast
has developed a Board that reflects the diverse demographics of our customers and employees and our nation.
Medifast is fortunate to have such distinguished Directors who have made significant contributions to our com-
munity and nation to include a Congressional Medal of Honor recipient, an Augustinian Friar who oversights a
major university, college, and two high schools and a seasoned technology and marketing executive who was one
of the participants in the turnaround of the Xerox Corporation.
Medifast has selected 9 Independent Directors, 1 Outside Director and 3 Management Directors who
are qualified to guide the company in this era of financial reform and massive technology changes. Most of them
have guided the company through 41 quarters of consecutive profitability and we expect will continue to over-
sight our operations and financial results with the same diligence exercised over the past 10 years.
The Board of Directors currently consists of 14 persons. They include 3 women, 11 males, 2 African
Americans, 11 Caucasians, who reside in Maryland, Virginia, Pennsylvania, Missouri, and Florida. The directors,
their ages, basis for their selection, and the year in which they first became director are provided in the table on
the next page:
74
Name and Experience
Harvey C. “Barney” Barnum, Jr., age 69, was sworn in as the Deputy Assistant Secre-
tary of the Navy for Reserve Affairs on July 23, 2001. In this capacity he was responsible
for all matters regarding the Navy and Marine Corps Reserve including manpower, equip-
ment, policy and budgeting. On Jan. 20, 2009, Barnum was designated Acting Assistant
Secretary of the Navy (Manpower and Reserve Affairs). Mr. Barnum was the fourth
Marine to be awarded the nation’s highest honor, the Medal of Honor for valor in Vietnam.
He retired from the Marine Corps as a Colonel in August 1989 after 27 and one-half years
of service. Barnum served multiple tours as an artilleryman with both the 3rd and 2nd
Marine Divisions to include two tours in Vietnam; 2nd Marine Aircraft Wing; guard officer
at Marine Barracks, Pearl Harbor, and operations officer, Hawaiian Armed Forces Police;
weapons instructor at the Officer Basic School; four years at Marine Corps Recruit Depot,
Parris Island, as commanding officer, Headquarters Company and the 2nd Recruit Training
Battalion of the Training Regiment; Chief of Current Operations, US Central Command
where he planned and executed the first U.S./Jordanian joint exercise staff as the
commander of U.S. Forces and twice planned and executed Operation Bright Star spread
over four southwest Asian countries involving 26,000 personnel. Headquarters Marine
Corps tours included: aide to the assistant commandant as a captain and deputy director
Public Affairs, Director Special Projects Directorate and Military Secretary to the Com-
mandant as a colonel. Upon retirement in 1989, Barnum served as the principal director,
Drug Enforcement Policy, Office of the Secretary of Defense. Barnum’s personal medals
and decorations include: the Medal of Honor; Defense Superior Service Medal; Legion of
Merit; the Bronze Star Medal with Combat “V” and gold star in lieu of a second award;
Purple Heart; Meritorious Service Medal; Navy Commendation Medal; Navy Achievement
Medal with Combat “V”; Combat Action Ribbon; Presidential Unit Citation; Army
Presidential Unit Citation; Joint Meritorious Unit Award; Navy Unit Citation; two awards
of the Meritorious Unit Citation; the Vietnamese Cross of Gallantry (silver) and the
Department of the Navy Distinguished Public Service Award. Barnum has attended The
Basic School, U.S. Army Field Artillery School, Amphibious Warfare School, U.S. Army
Command and General Staff College and the U.S. Naval War College. He is the past
president of the Congressional Medal of Honor Society, Connecticut Man of the Year ’67,
presented Honorary Legum Doctorem St Anselm College; Rotary Paul Harris Fellow; Abe
Pollin Leadership Award ’03, Marine Corps League “Iron Mike” Award and Order of the
Carabao Distinguished Service Award.
Harvey C. “Barney” Barnum was first selected to be a Director in 2009 because of his
extensive distinguished government service at the Department of the Navy Executive level
and his distinguished military career which includes the Medal of Honor Award for brav-
ery in Vietnam. Mr. Barnum will bring expertise to the Board in the area of Public Policy
initiatives as it relates to his knowledge of the Executive and Legislative Branch of the
US Government and his oversight of our Governmental Relations and Policy initiatives on
Obesity related to Medifast products, protocols and clinical studies.
Director Since
2009
75
2008
Barry B. Bondroff, CPA, age 61, is an officer and director with Gorfine, Schiller &
Gardyn, PA, a full-service certified public accounting firm offering a wide range of ac-
counting and consulting services. Previously, he was a Senior Managing Director with
SMART. Bondroff brings over 35 years of experience providing companies of all sizes and
industries with practical and cost-effective accounting, assurance, tax, business, technology
and financial advisory services. Prior to managing SMART, Bondroff was the Managing
Director for Grabush, Newman & Co., P.A., which combined with SMART in May 2003.
Bondroff began his career with Grabush Newman in 1970, and in 1976 became Officer and
was promoted to Managing Director in 1982. He earned his Bachelor of Science degree in
Accounting from the University of Baltimore. Additionally, Bondroff serves on the Board
of Directors for the publicly traded First Mariner Bank of Maryland, a NASDAQ listed
SEC registrant. He is active with First Mariner serving on the Executive Committee, Loan
Committee, Audit Committee and as Chairman of the Compensation Committee. In addi-
tion to his professional affiliations, Bondroff served on the Executive Committee for Israel
Bonds and was a Director of Cycle Across Maryland. He has served the National Jew-
ish Medical and Research Center, the Jewish Center for Business Development and has
assisted the Baltimore Symphony Orchestra in its fundraising efforts. In addition, Barry
was a past President and Treasurer of the Edward A. Meyerberg Northwest Senior Center,
and also served as a Member of the Board of Directors for the Levindale Hebrew Geriatric
Center and Hospital. He currently serves as Treasurer for Special Olympics of Maryland,
as a Trustee for Stevenson University in Maryland and a member of the Audit Committee
of the Associated.
Barry B Bondroff was first selected as a Director in 2008 because of his broad business
experience as a CPA, corporate governance experience over more than 36 years. His
current selection as a Director utilizes that experience as a financial expert and his elected
position of Vice Chairman of the Board. His service on the Audit Committee and
Nominating Committee and his availability as a local director in Baltimore provide for
local oversight and practical consulting in the area of financial management, risk assess-
ment and Sarbanes Oxley regulations. He has been appointed the Chairman of a special
committee that investigated and found a convicted felon’s allegations against Medifast
“false, misleading and without merit.” He also provides an extensive rolodex that assists
Medifast’s management team to find the best talent in the market to assist in our growth
and development.
Charles P. Connolly, age 60, is currently an independent director focusing on bank rela-
tionships, debt refinancing, merger and acquisition strategy and executive compensation
design. Mr. Connolly spent 29 years at First Union Corp. that merged with Wachovia Bank
in 2001. He retired in 2001 as the President and CEO of First Union Corp. of Pennsylva-
nia and Delaware. Mr. Connolly serves on the Boards of numerous profit and non-profit
organizations. He holds an MBA from the University of Chicago and AB from Villanova
University.
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Charles P. Connolly was first selected as a Director in 2006 for his extensive executive
experience and financial acumen derived from an executive banking resume. His current
selection as Director leverages that background of reviewing the financials and
performance of hundreds of companies in the public and private sector. He possesses a
unique financial and risk assessment perspective into the operations and financial
management of the company. He spends an extraordinary amount of time with our
executive team providing guidance and consultation on key metrics and performance
objectives that have served Medifast well in the past few years. As the Chairman of the
Audit Committee he has served diligently to insure that the company maintains its high
standards of accountability.
Jason L. Groves Esq., age 39, is the Assistant Vice President of Government Affairs
for Verizon Maryland, since 2003. Mr. Groves is also an Army veteran. He was a direct
commissioned Judge Advocate in the United States Army Judge Advocate General’s
Corps (JAG). As a JAG Officer, he practiced law while stationed at Fort George G. Meade,
Maryland. He had the distinction of prosecuting criminal cases in the District Court of
Maryland as a Special Assistant United States Attorney. Over the course of three years,
he received two Army Achievement Medals, and one Army Commendation Medal. Mr.
Groves is a graduate of the Disney University College Program for managers. He received
his Bachelor of Science degree, cum laude, in Business with a concentration in Hospitality
Management from Bethune-Cookman College. He also obtained his law degree from North
Carolina Central University School of Law and is a member of the New Jersey and District
of Columbia bars as well as several bar associations.
Jason L. Groves, Esq. was first selected as a Director in 2009 based on his military, busi-
ness and legal background. In addition he has extensive experience with governmental
relations and knowledge of the healthcare and communications technology fields. He was
a Federal and State prosecutor thus providing keen insight on the regulatory and legal
issues the company faces in today’s business climate. His service on the Audit Committee
has provided timely oversight for all projects he has undertaken.
George J. Lavin, Jr., Esq., age 81, was the senior founding partner of Lavin, O’Neil,
Ricci, Ceprone & Disipio. Mr. Lavin is a 1951 graduate of Bucknell University. He attended
the University of Pennsylvania School of Law, receiving an LL.B. in 1956, and then served
as a Special Agent, Federal Bureau of Investigation, United States Department of Justice,
until 1959. Mr. Lavin is one of the dominant product liability defense attorneys in the
nation. He has had regional responsibilities in several automotive specialty areas, and was
called upon to try matters throughout the county on behalf of his clients. Mr. Lavin’s prac-
tice and specialty emphasized his commitment to defending the automotive industry. Mr.
Lavin is admitted to practice before the Supreme Court of Pennsylvania, the United States
Court of Appeals for the Third Circuit and the United States District Courts for the Eastern
and Middle Districts of Pennsylvania. He is a member of the Faculty Advisory Board of the
2009
2005
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1996
Academy of Advocacy, the Association of Defense Counsel, The Defense Research Institute,
The American Board of Trial Advocates, and the Temple University Law School faculty. He
has also been elected a fellow of the American College of Trial Lawyers. On March 1, 1994,
Mr. Lavin assumed the title of Counsel to The Firm. Mr. Lavin is presently the General
Counsel to the Augustinian order of Villanova, PA.
George J. Lavin, Esq. was first selected as a Director in 2005 for his prestigious
demonstrated legal experience on behalf of major international businesses, management
experience in his law firm and his extensive service with the FBI. His current selection
as Director values his experiential oversight on legal matters as well as his service on the
Audit Committee and mentoring talents.
Bradley T. MacDonald, age 62, is the Executive Chairman of the Board of Medifast, Inc.
Mr. MacDonald has been Chairman of the Board of Medifast, Inc. since January 1998 and
was also Chief Executive officer until March of 2007. He was the principal architect of the
turnaround of Medifast and formulated the “Direct to Consumer” business models that
are the primary drivers of Revenue to this day. He also was the co-founder of Take Shape
For Life and acquired the Clinic operations in 2002. During his time as CEO, he man-
aged the company to 29 consecutive quarters of profits and improved shareholders equity
from negative $4 million to over $27 million in less than seven years. He also increased
the Company’s market cap from less than $1 million to over $100 million and listed the
company on the NYSE. At the time the Board planned leadership succession occurred, the
Board assigned Mr. MacDonald executive responsibilities in the following areas: legal
affairs, treasury, banking relationships, M&A, strategic plan oversight, public policy over-
sight, and community relations in addition to Board responsibilities as Executive Chairman
and as the formal Co-founder of Take Shape For Life. In 2006, Mr. MacDonald received
the prestigious and audited Ernst and Young award of “Entrepreneur of the Year” for the
state of Maryland in the consumer products category. Also, he helped lead the Company
to national recognition in Forbes Magazine ranking Medifast 28th of the top 200 small
companies in America. Mr. MacDonald was previously employed by the Company as its
Chief Executive Officer from September 1996 to August 1997. From 1991 through 1994,
Colonel MacDonald returned to active duty to be Deputy Director and Chief Financial
Officer of the Retail, Food, Hospitality and Recreation Businesses for the United States
Marine Corps. Prior thereto, Mr. MacDonald served as Chief Operating Officer of the Bon-
neau Sunglass Company, President of Pennsylvania Optical Co., Chairman and CEO of
MacDonald and Associates, which had major financial interests in retail drug, consumer
candy, and pilot sunglass companies. Mr. MacDonald was national president of the Marine
Corps Reserve Officers Association and retired from the United States Marine Corps
Reserve as a Colonel in 1997, after 27 years of service. He was appointed and served on the
Defense Advisory Board for Employer Support of the Guard and Reserve (ESGR.) for three
years. Currently, Mr. MacDonald serves on the Board of Directors of Stevenson Univer-
sity in Maryland, and the Catholic Family Foundation of the Archdiocese of Baltimore. He
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is also the Vice-Chairman of the Board of Directors of the Marine Corps Reserve Toys for
Tots Foundation. Mr. MacDonald is the father of Margaret Sheetz who performs the role of
President and Chief Operating Officer at Medifast, Inc. Mr. Michael C. MacDonald is the
brother of Mr. Bradley T. MacDonald.
Bradley T. MacDonald was first selected as a Director in 1996, because of his executive
and entrepreneurial experience in the businesses noted above. In addition he has held
leadership positions of increasing responsibility in the United States Marine Corps
attaining the rank of Colonel and attending service schools to include the Naval War
College. His current selection as Director is based on his successful turnaround of
Medifast as CEO and successfully guiding the company under a new profitable business
model. Having extensive experience on Wall Street, as CEO of Medifast when he restruc-
tured the company in 1999 which has since recorded over 41 consecutive quarters of profit-
ability, he is able to provide strategic guidance to the company. Upon reaching 60 years old
with the advice and consent of the Board he was elected Executive Chairman of the Board
to utilize his breadth of knowledge and experience regarding Medifast, Inc.
Michael C. MacDonald, age 57, is a retired Senior Corporate Officer. His last position
was Senior Vice President of World Wide Operational Effectiveness for Xerox Corporation.
He was named to this position in September 2008 and led a corporate initiative to review
the company’s core functions including Sales, Marketing, Human Resources and other key
areas to ensure maximum effectiveness of resources. Before this position, he was the World
Wide President of Marketing Operations, responsible for corporate marketing, Xerox.com,
advertising, brand creation, public relations and corporate communications. Prior to his
corporate assignments, he was President of Xerox North America, a 6.5 B Division respon-
sible for all services, solutions and products sold and maintained in the United States and
Canada. This included a direct sales force of 4,000, a technical service staff of 25,000 and
support staff of 6,000, a total of 35,000 employees. Mr. MacDonald also held Vice Presiden-
tial positions leading the Northeast Region Sales and Technical Service organization, the
North American Marketing organization, the North American Agent/Dealer organization
and the North American Supplies organization. A career described as sustained success
and over achievement in revenue, profit and customer satisfaction. His leadership profile
is one of creativity, vision, high expectations and results with commensurate high levels of
customer loyalty, employee development and satisfaction. Mr. MacDonald also serves on
the Board of Directors of Medifast, Inc., Paetec, Inc. and the Jimmy V Foundation. In
addition, he is also a board member of the North American Marketing Advisory Board
and has been recognized on four occasions as one of the Top Twenty Marketing Executives
of the Year by Business to Business Magazine. Previous to 2009, he was a member of the
Board of Directors of the U.S. Chamber of Commerce.
Michael C. MacDonald was first selected as a Director in 1998 based on his broad based
executive experience for Xerox. His current selection as Director is based on his tenured
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service with Xerox, and being a director of Paetec Inc. and Medifast Inc. through the
restructuring of all the companies. He has a national reputation as an expert in Sales and
Marketing in the high technology field. He has been instrumental in building the high
technology platform that Medifast operates today through a period of continuous growth in
the business. Because of his expertise and business acumen, the Board has elected him to
the Executive Committee in recognition of his expertise in corporate governance.
Sr. Catherine T. Maguire RSM, age 59, a Sister of Mercy, has served as Associate
Executive Director at SILOAM, a Body, Mind, Spirit wellness center for the HIV/AIDS
community, from 1997 - 2010. Prior to this Sr. Maguire worked in AIDS Ministry within
the prison system in Washington DC., and served as vocation director for her religious
community for 8 years. She received a BS degree in Education/English in 1972, a MS
degree in Library Science in 1974 both from Villanova University, and a MA degree in
Theology with an emphasis in Pastoral Ministry & Spirituality in 1995 from St. Michael’s
College in Vermont. She served on the Board of the National Religious Vocation Confer-
ence from 1990-1992.
Sister Catherine T. Maguire, RSM was first selected as a Director in 2009 for her extensive
executive experience with not for profit human services organizations and her strong
background in organizational ethics and human resources and personnel management.
She has multiple advanced degrees and will assist in developing the “Women Executives”
of Medifast. As a result of her extensive management and human resources background
she was elected to the Nominations committee where she will assist in screening and
evaluating potential Director Candidates and insure the corporate values related to
diversity are implemented in the company and on the Board.
John P. McDaniel, age 66, is a seasoned healthcare executive with more than 36 years
of experience as a chief executive officer, most recently at MedStar Health in Columbia,
Maryland, one of the largest and most comprehensive healthcare delivery systems in the
mid-Atlantic region with annual revenues exceeding $3 billion, encompassing 25,000
employees 5,000 physicians and nine leading hospitals and other health related
businesses. Mr. McDaniel has a degree in Business Administration from Wittenberg
University, a MHA in Health Management and Policy from the University of Michigan,
and an Honorary Doctorate of Humane Letters (LHD) from Wittenberg University. He is
presently a Partner in The Hickory Ridge Group, an advisory, development and investment
organization that focuses on emerging healthcare and technology entities. He is also a
member of the board of the Greater Baltimore Committee, the Greater Washington Board
of Trade, Wittenberg University, First Mariner Bank Corp and the Washington Real Estate
Trust (WRE).
2009
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John P. McDaniel was first selected a Director in 2009 for his extensive executive and
entrepreneurial experience. His extensive management and Board knowledge concerning
the health care industry and health care policy will provide seasoned oversight on behalf
of shareholders. Because of his experience and leadership experience as the Chairman
of the Racing Commission of Maryland, Director of First Mariner Bank and former
Chairman and CEO of Medstar Health Systems he is serving on the Executive and
Compensation Committees to bring his business acumen and organizational knowledge
to oversight the Company
Michael S. McDevitt, age 32, is the Chief Executive Officer of Medifast, Inc. Prior to
joining the company in June, 2002, he was a Senior Analyst for the Blackstone Group, a
private equity group in New York City.
2007
Medifast has continued to excel under Mr. McDevitt’s leadership, demonstrated by the
company’s recent report of its 41st consecutive quarter of profitability for the fourth quarter,
2009. Medifast continues to see strong year over year growth, most recently experiencing
57% top line growth and over 114% profitability growth, versus the same time period last
year. During his tenure as CEO/CFO of Medifast the company was named number 16 on
Forbes’ 2009 list of America’s Best Small Companies, a jump from 85 one year ago. Ad-
ditionally, Medifast was ranked number 28 on the 2008 Fortune Small Business list of
fastest-growing small public companies, up from number 47 in 2007. Mr. McDevitt volun-
teers as a big brother for Big Brothers Big Sisters of Central Maryland, fully supporting
the organization’s mission of helping boys and girls grow up to be confident, caring young
adults. He is a member of the board of directors for the American Heart Association’s
Baltimore region. Additionally, Mr. McDevitt supports the efforts of the American Diabetes
Association and the Toys For Tots Foundation. He is on the board of directors of the Augus-
tinian Press and works with several organizations of fellow CEOs. Mr. McDevitt holds a
Bachelor degree in Business Administration with a concentration in Finance from James
Madison University.
Michael S McDevitt was first selected as a Management Director in 2007 after he had
assumed the positions of Chief Executive Officer and Chief Financial Officer of Medifast,
Inc. His prior and current executive experience has contributed to the dynamic growth of
Medifast. He brings a strong successful financial and operational management perspective
to the Executive Committee of the Board.
Jeannette M. Mills, age 43, currently serving as senior vice president with the Baltimore
Gas and Electric Company, a subsidiary of Constellation Energy. A Baltimore, MD native,
Mills earned her Bachelor of Science in Electrical Engineering from Virginia Polytechnic
Institute & State University (Virginia Tech) and she currently serves on the Advisory
Board of the Bradley Department of Electrical and Computer Engineering. In 2006, Mills
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earned her Masters of Business Administration from Loyola College. Ms. Mills also works
in the community, serving on the Board of Directors for Voices for Children, Howard
County’s Court Appointed Special Advocate Program. Additionally, she serves on the Board
of the Creative Alliance, a Program that builds communities by bringing together artists
and audiences from diverse backgrounds to experience spectacular arts programs and
engage in the creative process.
Jeannette M. Mills was first selected as a Director in 2008 not only for her technical back-
ground but primarily for her high level of executive experience. Her service as Chairperson
of the Compensation Committee has effectively utilized her talents to review and assess
the operations and metrics used to evaluate key executives in the company. She has been
instrumental in providing guidance and direction to ensure that all executives maintain
the transparent high performance culture, and entrepreneurial philosophy of executive
compensation balanced with appropriate risk assessment analysis.
Jerry D. Reece, age 69, is chief executive officer of Reece & Nichols: Real Estate,
Mortgage, Title Insurance. The real estate arm of the company is the largest real estate
brokerage in Greater Kansas City. With over 40 years experience in real estate, Jerry
Reece formed J.D. Reece Realtors in early 1987. He sold the company in 2001 to
Homeservices of America, Inc. a Berkshire Hathaway affiliate. In addition to marketing
resale homes as well as a broad range of new home subdivisions, the company special-
izes in the corporate transferee market. After graduating from the University of Oregon
in 1963 with a B.S. in Finance, Jerry Reece joined the United States Marine Corps and
served in Hawaii and Vietnam as a first lieutenant. Following active duty, he continued his
service in the Marine Corps Reserve. His various assignments included the command of a
rifle battalion and service as a member of the Secretary of the Navy’s Marine Corps
Reserve Policy Board at the Pentagon. Retired with the rank of colonel, he is a past
member of the Board of Directors of the Marine Toys for Tots Foundation. His personal
decorations include the Legion of Merit, The Navy Commendation Medal with Combat
“V” and the Combat Action Ribbon.
Jerry D. Reece was first selected as a Director in 2009 for his executive, entrepreneurial
and broad real estate expertise. He is a leader in his community in Kansas City and has
served on many for profit and non profit Boards, He is a decorated Vietnam veteran who
has both civil and military executive experience to provide oversight and be a resource for
executive and real estate matters requiring Board and corporate governance oversight.
2009
Donald F. Reilly, OSA, age 62, holds a Doctorate in Ministry (Counseling) from New
York Theological and an M.A. from Washington Theological Union as well as a B.A. from
Villanova University. Reverend Don Reilly was ordained a priest in 1974. His assignments
included Associate Pastor, Pastor at St. Denis, Havertown, Pennsylvania, Staff at Villanova
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University, Personnel Director of the Augustinian Province of St. Thomas of Villanova,
Provincial Counselor, Co-Founder of SILOAM Ministries where he ministers and counsels
HIV/AIDS patients and caregivers. He is currently on the Board of Directors of Villanova
University. He also serves on the Board of Trustees of Merrimack College, MA, St.
Augustine Prep, NJ, and Malvern Prep, PA. Fr. Reilly was Prior Provincial of the
Augustinian Order at Villanova, PA from 2002 - 2010. He oversaw more than 220
Augustinian Friars and their service to the Church, teaching at universities and high
schools, ministering to parishes, serving as chaplain in the Armed Forces and hospitals,
ministering to AIDS victims, and serving missions in Japan, Peru, and South Africa.
Very Rev. Donald F. Reilly, OSA was first selected as a Director in 1998 for his strong back-
ground in Personnel and Executive management with the Augustinian Community which
serves the Catholic Church at Villanova University, Merrimack College, High Schools,
Parishes and missions in Japan, South Africa and Peru. His current selection as Director
utilizes his extensive knowledge of the Company serving as a Director and participating
in the restructuring of the company in 1999. He was also instrumental in developing the
current business model in consultation with the Business School at Villanova University.
As Chairman of the Nominations committee and being a Ph.D and nationally known
academic he has been an invaluable asset providing guidance to the company and creating
shareholder value. He also is the primary person on the Nomination Committee to
identify and evaluate potential Director Candidates for character necessary to perform
high performance, risk assessment and be transparent which are desirable characteristics
for all potential directors. This will ensure continuity in respect to the company’s corporate
governance practices and philosophy.
Margaret Sheetz, age 32, is the President and Chief Operating Officer of Medifast. Inc.
Prior to joining the company in 2000, she was a legal assistant with the firm of Carrington,
Coleman, Sloman and Blumenthal in Dallas, Texas. As Medifast continues to see strong
year over year growth, Ms. Sheetz has provided the operational and technical leadership
that has resulted in Medifast providing the proper infrastructure to support the growth
of the company to include making dramatic productivity improvement in the company’s
operational capabilities, building a strong infrastructure of distribution, manufacturing,
information systems and human resource operations necessary to support rapid
business growth. She supports the efforts of the American Diabetes Association, the Ameri-
can Heart Association and the Toys For Tots Foundation. Ms. Sheetz is also very active
with several organizations of Maryland executives. She holds a Bachelor of Arts degree
from Villanova University and received an Executive MBA from Loyola University.
Margaret M. Sheetz was first selected as a Management Director in 2008 after she had
assumed the positions of President and Chief Operating Officer of Medifast, Inc. She is
the senior experienced operations executive who has built the operational structure of the
company. In addition to her strong operational expertise she has strength in IT integration
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with operations and human resources management. She has an Executive MBA which has
assisted her in the training development of her subordinates. She is the focused
executive since 2000 who has been instrumental in building the manufacturing and
distribution infrastructure with her team of professionals. Her leadership and oversight
skills are recognized and she is recognized in the company as a detail oriented executive
who builds high performance teams. The Board considers her the source person to get
information pertinent to the oversight of Medifast’s operations.
CORPORATE GOVERNANCE
Board Involvement in Risk Oversight
The Company takes a comprehensive approach to risk management. We believe risk can arise in every
decision and action taken by the Company, whether strategic or operational. The Company, therefore, seeks to
include risk management principles in all of its management processes and in the responsibilities of its
employees at every level. Our comprehensive approach is reflected in the reporting processes by which our
management provides timely and comprehensive information to the Board to support the Board’s role in
oversight, approval and decision-making.
The Board of Directors closely monitors the information it receives from management and provides
oversight and guidance to our management team concerning the assessment and management of risk. The
Board approves the Company’s high level goals, strategies and policies to set the tone and direction for
appropriate risk taking within the business. The Board and its committees then emphasize this tone and
direction in its oversight of management’s implementation of the Company’s goals, strategies and policies.
Our senior executives provide the Board and its committees with regular updates about the Company’s
strategies and objectives and the risks inherent within them at Board and committee meetings and in regular
reports. Board and committee meetings also provide a venue for directors to discuss issues with management.
The Board and committees call special meetings when necessary to address specific issues. In addition, our
directors have access to Company management at all levels to discuss any matters of interest, including those
related to risk. Those members of management most knowledgeable of the issues attend Board meetings to
provide additional insight into items being discussed, including risk exposures.
The Board has delegated oversight for matters involving certain specific areas of risk exposure to its
three committees. Each committee reports to the Board of Directors at regularly scheduled Board meetings,
and more frequently if appropriate, with respect to the matters and risks for which the committee provides
oversight.
The Audit Committee oversees the integrity of our financial statements, reporting process and internal
controls, the internal audit function, the independent auditors’ qualifications, independence and performance,
and the Company’s corporate finance matters including its capital structure. The Audit Committee also provides
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oversight with respect to the Company’s risk management process, including, as required by the NYSE,
discussing with management the Company’s significant financial risk exposures, steps management has
taken to monitor, control and report such exposures and our policies with respect to risk assessment and risk
management.
Our Compensation Committee is responsible primarily for the design and oversight of the Company’s
executive compensation policies, plans and practices. A key objective of the Compensation Committee is to
ensure that the Company’s overall executive compensation program appropriately links pay to performance and
aligns the interests of the Company’s executives with its stockholders. In furtherance of this objective, the
Compensation Committee evaluates the potential compensation payable under the Company’s executive
compensation plans based on alternative performance scenarios. The Compensation Committee also monitors
the design and administration of the Company’s overall incentive compensation programs to ensure that they
include appropriate safeguards to avoid encouraging unnecessary or excessive risk taking by Company
employees. Elements of our executive compensation program that mitigate excessive risk taking, such as
our combination of short and long-term incentives are described below under “Compensation Discussion
and Analysis.”
The Nominating and Corporate Governance Committee oversees risks related to our corporate
governance, including Board and director performance, director succession, director education and the
Company’s Corporate Governance Guidelines and other governance documents. The Nominating and Corporate
Governance Committee also oversees the Company’s quality and regulatory affairs operations and the
Company’s programs regarding ethics and compliance, and social and environmental responsibility.
Pursuant to Medifast Inc.’s bylaws and governance guidelines, the rules of the NYSE, and the
Chairman of the Board, the Nominations Committee along with the consent of the Board of Directors
determines the best committee structure for Medifast. The Board elects the Officers of the company. Since 2007
Medifast, Inc. has had a separate Chairman of the Board and Chief Executive Officer. The Chairman position
is elected every three years and the Chief Executive Officer CFO, President and Chief Operating Officer are
elected annually by the Board. Bradley T. MacDonald, Executive Chairman of the Board has executive
responsibilities and is responsible for the Legal Affairs and Treasury functions of the company, the banking
relationships, community relations, M&A oversight and Strategic Planning. The Board of Directors is confident
that the current leadership structure of the company based on past performance is in the Company’s best
interest of creating shareholder value and building the Medifast business for the future. The Chief Executive
Officer, CFO, President, Chief Operating Officer and the Chairman of the Board have an excellent working
relationship and understand the roles and responsibilities of each executive position.. Michael S. McDevitt, the
CEO/CFO has the primary operational and financial responsibility for Medifast. Margaret Sheetz reporting
to the CEO, has the primary responsibility for the internal operations of Medifast Inc.. The current leadership
structure also provides significant benefits that come from Mr. MacDonald’s long tenure as Chairman of the
Board and his prior experience as Chief Executive Officer of Medifast, Inc. and Co-Founder of Take Shape
For Life.
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Certain Relationships and Related Transactions
The Board of Directors of the Company has established a policy and certain procedures that must be
followed prior to any transaction, arrangement or relationship or series of similar transactions, arrangements or
relationships, including any indebtedness or guarantee of indebtedness, with a related party. Under this policy,
the Nominating and Corporate Governance Committee monitors and reviews issues involving potential conflicts
of interest involving officers and directors of the Company, including reviewing all related party transactions.
Director Independence
The Board consists of 14 members of which 11 are non-management directors. Determination as to
the qualifications of an independent directors are determined under section 303A.02 of the New York Stock
Exchange, or the NYSE, Listed Company Manual and the Company’s Categorical Standards of Independence.
The NYSE’s independence guidelines and the Company’s categorical standards include a series of objective
tests, such as the director is not an employee of the Company and has not engaged in various types of business
dealings involving the Company, which would prevent a director from being independent. The Board of Directors
has affirmatively determined that none of the Company’s independent directors had any relationships with the
Company.
The Board, in applying the above referenced standards has affirmatively determined the Company’s
current independent directors are: Harvey C. Barnum, Barry B. Bondroff, Charles P. Connolly, Jason L. Groves,
George J. Lavin, Jr. Esq., Catherine T. Maguire, John P. McDaniel, Jeannette M. Mills, Jerry D. Reece, and
Donald F. Reilly.
Board Meetings
For the fiscal year ended December 31, 2009 (“Fiscal 2008”), the Board of Directors held five meetings. All Board
members attended at least 75% of the aggregate number of Board meetings and applicable committee meetings
held while such individuals were serving on the Board of Directors, or such committees. Under the Company’s
Principles of Corporate Governance, which is available on the Company’s website www.choosemedifast.com, by
following the link through “Investor Relations” to “Corporate Governance,” each director is expected to dedicate
sufficient time, energy and attention to ensure the diligent performance of his or her duties, including
attending meetings of the shareholders of the Company, the Board of Directors and committees of which he or
she is a member. Twelve directors attended the 2009 annual shareholder meeting.
Codes of Business Conduct and Ethics and Corporate Governance Guidelines
Our Board of Directors has adopted a corporate Code of Business Conduct and Ethics applicable to our directors,
officers, including our principal executive officer, principal financial officer and principal accounting officer, and
employees, as well as Corporate Governance Guidelines, in accordance with applicable rules and regulations of
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the SEC and the NYSE. Each of our Code of Business Conduct and Ethics and Corporate Governance Guidelines
are available on our website at www.choosemedifast.com by following the links through “Investor Relations” to
“Corporate Governance.”
Any amendment to, or waiver from, a provision of the Company’s Code of Business Conduct and Ethics
with respect to the Company’s principal executive officer, principal financial officer, principal accounting officer
or controller will be posted on the Company’s website, www.choosemedifast.com.
Committees of the Board
Our Board of Directors has a standing audit committee, nominating and corporate governance
committee, compensation committee, and executive committee.
Audit Committee
Our audit committee consists of, Charles P. Connolly Chairperson, Barry B. Bondroff, George J. Lavin,
Jr. Esq., and Jason L. Groves, Esq. each of whom are independent as discussed above under “Director Indepen-
dence.” As required by Rule 303A.07 of the NYSE Listed Company Manual, the Board of Directors has affirma-
tively determined that each audit committee member is financially literate, and that Mr. Connolly is an “audit
committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K.
The principal duties of the audit committee are as follows:
• have the sole authority and responsibility to hire, evaluate and, where appropriate, replace the
independent auditors;
• meet and review with management and the independent auditors the interim financial statements
and the Company’s disclosures under Management’s Discussion and Analysis of Financial Condition
and Results of Operations prior to the filing of the Company’s Quarterly Reports on Form 10-Q;
• meet and review with management and the independent auditors the financial statements to be
included in the Company’s Annual Report on Form 10-K (or the annual report to shareowners)
including (i) their judgment about the quality, not just acceptability, of the Company’s accounting
principles, including significant financial reporting issues and judgments made in connection with the
preparation of the financial statements; (ii) the clarity of the disclosures in the financial statements;
and (iii) the Company’s disclosures under Management’s Discussion and Analysis of Financial
Condition and Results of Operations, including critical accounting policies;
•
review and discuss with management, the internal auditors and the independent auditors the
Company’s policies with respect to risk assessment and risk management;
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•
review and discuss with management, the internal auditors and the independent auditors the
Company’s internal controls, the results of the internal audit program, and the Company’s disclosure
controls and procedures, and quarterly assessment of such controls and procedures;
• establish procedures for handling complaints regarding accounting, internal accounting controls and
auditing matters, including procedures for confidential, anonymous submission of concerns by
employees regarding accounting and auditing matters; and
• Review and discuss with management, the internal auditors and the independent auditors the overall
adequacy and effectiveness of the Company’s legal, regulatory and ethical compliance programs
• Serve as a communication report to link under company Whistlerblower Policy
Our Board of Directors has adopted a written charter for the audit committee which is available on
the Company’s website at www.choosemedifast.com by following the links through “Investor Relations” to
“Corporate Governance.” In fiscal 2009, the audit committee met five times.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee consists of Very Rev. Donald F. Reilly,
Chairperson, Sister Catherine T. Maguire, and Barry B. Bondroff, , all of whom are independent as discussed
above under “— Director Independence.” The Nominating and Corporate Governance Committee identifies and
recommends to the Board of Directors qualified candidates for election as Directors, recommends Director
Committee assignments, and recommends actions necessary for the proper governance of Medifast, Inc., and
for the evaluation of the performance of the Board of Directors and Chief Executive Officer. With input from the
Executive Chairman of the Board and Chief Executive Officer, the Nominating and Corporate Governance
Committee recommends certain executive officers for annual election. The Nominating and Corporate
Governance Committee reviews issues and developments related to corporate governance practices and makes
recommendations to the Board of Directors on changes in structure, rule or practice necessary for compliance
and for good corporate governance. The Nominations committee has been tasked to assist the Chairman in
selecting the most qualified and appropriate directors to serve on the company’s separate Board committees.
Medifast, Inc.’s Nominating and Corporate Governance Committee Charter provides that the skills
and characteristics required generally of Directors include diversity, age, business background and experience,
accomplishments, experiences in Medifast, Inc.’s business and a willingness to make the requisite commitment
of time and effort. Accordingly, the Board of Directors has not set minimum standards for Director candidates.
Rather, it seeks highly qualified individuals with diverse backgrounds, business and life experiences that will
enable them to constructively review and guide management of Medifast, Inc. Medifast, Inc. has successfully
obtained diverse highly qualified candidates for Directors without utilizing a paid outside consultant. The
Corporate Governance Committee considers and evaluates potential Director candidates and makes its
recommendations to the full Board of Directors. Any shareholder may submit a recommendation for nomination
88
to the Board of Directors by sending a written statement of the qualifications of the recommended individual to
the Corporate Secretary, Medifast, Inc., 11445 Cronhill Dr., Owings Mills, MD 21117. The Nominating and
Corporate Governance Committee will utilize the same process for evaluating all nominees, regardless of
whether the nominee recommendation is submitted by a shareholder or some other source.
If a shareholder wishes to nominate a candidate for election to the Board of Directors, in order for the
nomination to be properly made the shareholder must give written notice to the Corporate Secretary of
Medifast, Inc. Notice must be received at Medifast, Inc.’s principal executive offices at least 90 days before the
date that is one year after the prior year’s regular meeting. The notice must set forth: (i) the name and address
of the shareholder who intends to make the nomination and of the nominee or nominees, (ii) a representation
that the shareholder is a holder of record of shares of Medifast, Inc. entitled to vote at the meeting and that
the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice, (iii) a description of all arrangements or understanding between the shareholder and
each nominee and any other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder, (iv) such other information regarding each
nominee proposed by the shareholder as would have been required to be included in a proxy statement filed
pursuant to the proxy rules of the SEC and the Company Bylaws had each nominee been nominated, or
intended to be nominated, by the Board of Directors, and (v) the consent of each nominee to serve as a Director
of Medifast, Inc. if so elected.
Our Board of Directors has adopted a written charter for the nominating and corporate governance
committee, which is available on the Company’s website at www.choosemedifast.com by following the links
through “Investor Relations” to “Corporate Governance” or in print to any shareholder who requests it as set
forth under “Additional Information — Annual Report, Financial and Additional Information.” In fiscal 2009,
the nominating and corporate governance committee met four times.
Compensation Committee
The compensation committee currently consists of Jeannette M. Mills, Chairperson , John P. McDaniel
and Jerry D. Reece, all of whom were independent as discussed above under “— Director Independence.”
The principal duties of the compensation committee are as follows:
• measure the Chief Executive Officer’s performance against his goals and objectives pursuant to
the Company plans;
• determine the compensation of the Chief Executive Officer after considering the evaluation by the
89
Board of Directors of his performance;
•
•
review and approve compensation of elected officers and all senior executives based on their
evaluations, taking into account the evaluation by the Chief Executive Officer;
review and approve any employment agreements, severance arrangements, retirement arrangements,
change in control agreements/provisions, and any special or supplemental benefits for each elected
officer and senior executive of the Company;
• approve, modify or amend all non-equity plans designed and intended to provide compensation
primarily for elected officers and senior executives of the Company;
• make recommendations to the Board regarding adoption of equity plans; and
• Modify or amend all equity plans.
• Review the executive compensation philosophy of the Company; and assess any risks which may be
reasonably deemed material to the Company; and recommend to the Board any changes deemed
necessary to the Company executive compensation plan; or any sales channel compensation plan.
Our Board of Directors has adopted a written charter for the compensation committee which is available on the
Company’s website at www.choosemedifast.com by following the links through “Investor Relations” to “Corporate
Governance.” In fiscal 2009, the compensation committee met four times.
Executive Committee
Messrs. Bradley T. MacDonald, Chairperson , Michael C. MacDonald, Michael S. McDevitt, John P.
McDaniel and Jerry D. Reece are members of the Executive Committee. The Executive Committee has all the
authority of the Board of Directors, except with respect to certain matters that by statute may not be delegated
by the Board of Directors. The Committee meets periodically during the year to develop and review strategic
operational and management polices for the Company. The Committee held two meetings during fiscal 2009.
DIRECTOR COMPENSATION
The non-employee Directors of Medifast, Inc. receive an annual stock grant for their services as director. In 2009,
each director received 4,000 shares of restricted stock, with the exception of John P. McDaniel and Catherine T.
Maguire who received a pro-rata amount of 3,500 shares for their service. In 2009, Directors did not receive a
meeting fee for attending either committee or Board of Director meetings.
90
2009 Director Compensation Table
The table below summarizes the compensation paid by the Company to non-employee directors for the fiscal
year ended December 31, 2009.
Name
Barry B. Bondroff
Charles P. Connolly
George Lavin, Jr., Esq.
Michael C. MacDonald
Catherine T. Maguire
John P. McDaniel
Jeannette M. Mills
Rev. Donald F. Reilly, OSA
Fees Earned
or Paid in
Cash ($)
Stock
Awards ($)
(1)
Total ($)
$ -
$39,195
$39,195
16,000
-
-
-
44,565
44,565
49,935
28,280
28,280
39,195
49,935
60,565
44,565
49,935
28,280
28,280
39,195
49,935
Employee Directors do not receive any additional compensation for their services as director.
Additional fees are paid to the Audit Committee Chairman. In 2009, the Chairman received an
additional $16,000 in cash compensation.
(1) Amounts are calculated based on the aggregate grant date fair value of these rewards compute in
accordance with ASC Topic 718 “Stock Compensation” which excludes the effect of estimated forfeitures.
The assumptions and methodologies used to calculate these amounts are discussed in Note 2 to our
Consolidated Financial Statements in the 2009 Annual Report to Stockholders filed on Form 10-K
with the Securities and Exchange Commission. Under generally accepted accounting principles,
compensation expense with respect to stock awards and option awards granted to our employees is
recognized over the vesting periods of the applicable rewards.
91
The table below summarizes the equity based awards held by the Company’s non-employee directors as
of December 31, 2009.
Option
Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Number of
Securities
Underlying
Unexercised
Options (#)
Option
Exercise
Option
Expiration
Stock
Awards
Number
Shares or
Units of
Stock That
Have Not
Vested
Market
Value of
Shares or
Units of
Stock that
have not
Vested
Exercisable Un-Exercisable
Price ($)
Date
Vested (#)
($)(1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,000
152,900
8,000
244,640
8,000
244,640
11,000
336,380
2,500
76,450
2,500
76,450
5,000
152,900
11,000
336,380
Name
Barry B.
Bondroff
Charles P.
Connolly
George
Lavin, Jr., Esq.
Michael C.
MacDonald
Catherine T.
Maguire
John P.
McDaniel
Jeannette M.
Mills
Rev. Donald F.
Reilly, OSA
(1) The market value of shares of stock that have not vested is based on the closing price of our common
stock on December 31, 2009, or $30.58 per share.
The Medifast Board of Directors on July 24, 2008 approved restricted common stock grants to Board
members with a 5 year vesting period, beginning on the grant date. The grant was to tenured Board members
that successfully implemented the Senior Management Succession Plan over the last four years through advice,
counsel, and mentorship. A total of 55,000 shares of restricted common stock were granted to tenured Directors.
The Medifast Board of Directors on November 24, 2008 approved restricted common stock grants to key
executives and Board members as a 2008 performance bonus for exceeding internal sales and profit forecasts.
Non-management Board members were each granted 5,000 shares of restricted common stock vesting over two
years, beginning on January 1, 2009.
92
The Medifast Board of Directors on May 7, 2009 approved restricted common stock grants to key
executives and Board members with a 5 year vesting period, beginning on the grant date. Key executives were
granted 460,000 shares of restricted common stock to retain their services over the next five years and recognize
continued sales and profit growth in accordance with targets set by the Board of Directors. The Board of
Directors received a total of 71,000 shares with a two year vesting period, beginning on the grant date for their
active participation in the strategic planning process and guidance as it relates to Medifast’s strong performance
and growth.
ADDITIONAL INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons
who beneficially own more than ten percent of a registered class of the Company’s equity securities to file with
the SEC and the NYSE initial reports of ownership and reports of changes in ownership of equity securities
of the Company. Directors, officers and greater-than-ten-percent beneficial owners are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms filed by them. In 2009, to the
Company’s knowledge, based solely on a review of the copies of such filings on file with the Company
and written representations from the Company’s directors and executive officers, no Section 16(a) filing
requirements were applicable to the Company’s directors, executive officers and greater-than-ten-percent
beneficial owners in fiscal 2009.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION DISCUSSION AND ANALYSIS
Purpose and Philosophy
The Compensation Committee of the Board of Directors is responsible for developing and recommending
to the Board of Directors Medifast, Inc.’s executive compensation program for the five named executive officers:
(referred to in this CD&A as the “executive officers”). Each of these executive officers is included in the
Summary Compensation Table and the related tables beginning on page 17.
The Compensation Committee is responsible for creation and periodic review of the overall
executive compensation philosophy of Medifast, Inc. , related analysis and assessment of any material risk
to the Company related thereto, and it outlines the components of executive compensation for the executive
officers. Medifast, Inc. believes that strong, effective leadership is the cornerstone of its continued growth and
93
success. To be successful, Medifast, Inc. must be able to attract, retain, and motivate highly qualified executive
officers with the competencies needed to excel in a rapidly changing marketplace and to understand issues
relating to a diverse group of companies in several different industries.
Executive compensation at Medifast, Inc. is focused on executive performance keyed to results.
Medifast, Inc. provides fair and equitable compensation to its executive officers by combining conservative base
pay, annual cash incentive, stock-based long-term incentive, and competitive health, dental and other benefits.
The Executive Cash Bonus Plan is designed to reward executives for Medifast, Inc.’s current year financial
success and recognize the responsibilities of the executive officers for meeting Medifast, Inc.’s financial perfor-
mance goals. Stock-based incentives focus on long-term performance by aligning the executive officers’ long-term
financial interests with Medifast, Inc.’s shareholders’ interest. Health, dental, vacation, and other benefits are
designed to be competitive with companies with whom Medifast, Inc. competes for executive talent.
Total direct compensation which includes base pay, annual cash incentive and stock-based long-term
incentive is measured against similarly sized organizations (based on revenue) in the general industry. Medifast,
Inc. targets total direct compensation for each executive officer near median for similarly sized organizations
in the general industry. The mix of pay (base pay, annual cash incentive and long-term incentive) is designed to
reflect a strong bias towards pay for performance by placing a majority of target compensation at risk. The only
element of total direct compensation that is not performance based is base pay. Both annual cash incentive and
long-term incentive are performance based.
Elements of Executive Compensation
Base Salary
Our base salary determinations principally reflect the skills and performance levels of individual
executives, the needs of the Company, and pay practices of comparable public companies with similar sales and
growth rates. It is not our policy to pay our executive officers at the highest base salary level. Instead, we
establish executive base salaries below the midpoint level relative to an appropriate set of peers and Companies
with similar sales. We believe this policy sets a prudent and fiscally responsible tone for the Company’s overall
base salary compensation programs.
Target Bonus
Cash bonuses principally reflect the Company’s financial performance and achievement of corporate
objectives established by our Board prior to the fiscal year. The executive bonus plan is designed to reward our
executives for the achievement of shorter-term financial goals, predominantly revenue growth, profitability, and
cash flow. In consultation with the Chief Executive Officer, the Compensation Committee evaluates, adjusts and
approves the amount and allocation of the bonus pool to each named executive officer. In determining the cash
bonus allocation among senior executives, the Compensation Committee and the Chief Executive Officer con-
sider each executive’s a) contribution to current and long-term corporate goals, and b) value in the labor market.
The financial targets for annual cash incentive are premised upon the executive officers delivering on
94
their financial performance projections to Medifast, Inc. as reflected in part, in the annual budget approved by
the Board of Directors. In 2009 targeted annual incentive compensation was tied to the annual budget approved
by the Board of Directors. The Compensation Committee set the target for pre-tax profit as a percentage of sales
at 10%, the target for corporate revenue at $135 million, and net increase in cash and cash equivalents at $6
million. The target performance level is set to promote solid performance. The financial targets for annual cash
incentive are divided into three components as follows:
1. Pre-Tax profit as a percentage of sales. Each executive officer receives 33.33% of the total target
payout if Medifast, Inc. achieves the targeted pre-tax profit as a % of sales. Each officer receives
a portion of the total target payout if Medifast, Inc. achieves the targeted performance level, and
additional increments for performance above the target. For pre-tax earnings as a percentage of sales
the target was 10%. Medifast, Inc. was well above the threshold performance level for pre-tax
earnings as a percentage of sales in 2009 at 11.7% compared to the target of 10%.
2. Corporate Revenue. Each officer receives 33.33% of the total target payout if Medifast, Inc. achieves
the targeted sales amount for the full year. Each officer receives a portion of the total target
payout if Medifast, Inc. achieves the targeted performance level, and additional increments for
performance above the target. For corporate sales the target was $135 million. Medifast, Inc. was
well above the targeted performance level for sales in 2009 finishing at $165.6 million, or $30.6
million above the target set by the Board.
3. Net increase in cash and cash equivalents. Each officer receives 33.33% of the total target payout
if Medifast, Inc. achieves the targeted net cash increase for the full year. Each officer receives a
portion of the total target payout if Medifast, Inc. achieves the targeted performance level, and
additional increments for performance above the target The net increase in cash and cash equivalents
target was $6 million. Medifast, Inc. exceeded the maximum performance level for the net increase in
cash and cash equivalents in 2009 by generating a $10.9 million net increase in cash and cash
equivalents.
Equity Compensation
Stock option and restricted stock awards principally reflect the responsibilities to be assumed by each
executive in the upcoming fiscal year, the responsibilities of each executive in prior periods, the size of awards
made to each executive in prior years relative to the Company’s overall performance, available stock for issuance
under our Option Plan, and potential grants in future years. The Committee believes that stock option and
restricted stock grants (1) align the interests of executives with long-term stockholder interests as the grants
vest over 5-6 years, (2) give executives a significant, long-term interest in the Company’s success, and (3) help
retain key executives in a competitive market for executive talent. The restricted stock awards award the
continuity of service of the executive officers since the restricted stock awards vest over a period of 5-6 years
and unvested, restricted stock is forfeited upon voluntary termination. In addition, the value of shares awarded
increase or decrease with the value provided to shareholders.
95
Equity Ownership by Executives
We do not currently have a formal equity ownership requirement for our executives. However, we
encourage our executives to own equity in the Company on a voluntary basis. All of our named executive
officers own stock, restricted stock and vested and unvested stock options. We periodically review the vested and
unvested equity holdings of our executives and evaluate whether these holdings sufficiently align the interests
of our executives with the long-term interests of our stockholders. We may consider adopting equity ownership
requirements in the future.
Report of the Compensation Committee
We have reviewed and discussed with management certain Compensation Discussion and Analysis provisions
to be included in this Form 10-K. Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the Compensation Discussion and Analysis referred to above be included on the Form
10-K for the year-ended December 31, 2009. Based upon the Compensation Committee risk assessment , the
Board does not believe the Executive Compensation Plan or any distribution channel compensation Plan
presents a material risk to the Company as structured.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Jeannette M. Mills, Chairman
John P. McDaniel
Jerry D. Reece
2009 Summary Compensation Table
The following table sets forth the annual and long-term compensation for the last three fiscal years of
the Company’s Chief Executive Officer and Chief Financial Officer and each of the three other most highly
compensated executive officers. These individuals, including the Chief Executive Officer and Chief Financial
Officer are collectively referred to as the Named Executive Officers.
96
Salary
Stock
Awards
Option
Awards Bonus
Nonqualified
Deferred
Compensation
Contributions
All
Other
Total
Name and
Principal Position
Year
($)
($)(1)
($)(1)
($)(2)
($)
($)(3)
($)
Bradley T. MacDonald
2009
Chairman of
the Board
2008 225,000
107,000
2007 225,000
-
Michael S. McDevitt
2009 185,000
639,000
Chief Executive
and CFO
2008 135,000
450,000
-
-
-
-
-
-
-
75,000
$3,600
100,000
6,700
438,700
100,000
6,600
331,600
5,800
2,700
662,700
2007 135,000
289,000
-
75,000
2,500
501,500
Leo V. Williams
2009 135,000
Executive Vice
President
2008 132,500
2007 132,500
-
-
-
Margaret Sheetz
2009 155,000
531,000
Chief Operating
Officer, President
2008 100,000
372,000
-
-
85,000
25,000
-
25,000
-
-
50,000
4,600
224,600
2,900
160,400
1,900
159,400
4,900
3,000
525,000
2007 100,000
237,000
-
50,000
2,900
389,900
Brendan N. Connors
2009 125,000
167,000
VP of Finance
2008
2007
99,000
101,000
99,000
47,000
-
-
-
20,000
20,000
3,900
412,900
3,000
223,000
2,900
168,900
(1) Amounts shown represent the aggregate grant date fair value of the stock awards in the year
indicated. For a discussion of the assumptions made in the valuation reflected in these columns, see
Note 2 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year
ended December 31, 2009. The actual value that may be realized from an award is contingent upon the
satisfaction of the conditions to vesting in that award on the date the award is vested. Thus, there is no
assurance that the value, if any, eventually realized will correspond to the amount shown.
(2) Bonus amounts determined as more specifically discussed above under “—Compensation Discussion
and Analysis”
(3) The amounts represent the Company’s matching contributions under the 401(K) plan.
97
2009 Grants of Plan-Based Awards
The Medifast Board of Directors on May 7, 2009 approved restricted common stock grants to key
executives and Board members with a 5 year vesting period, beginning on the grant date. Key executives were
granted 460,000 shares of restricted common stock to retain their services over the next five years and recognize
continued sales and profit growth in accordance with targets set by the Board of Directors. The Board of
Directors received a total of 71,000 shares with a two year vesting period, beginning on the grant date for their
active participation in the strategic planning process and guidance as it relates to Medifast’s strong performance
and growth.
The Medifast Board of Directors on November 24, 2008 approved restricted common stock grants to
key executives as a 2008 performance bonus for exceeding internal sales and profit forecasts. Key executives
were granted 150,000 shares of restricted common stock over a five year vesting period,beginning on January
1, 2009.
The Medifast Board of Directors on July 24, 2008 approved restricted common stock grants to the
Named Executives with a 5 year vesting period, beginning on the grant date. Named Executive Officers were
granted 425,000 shares of restricted common stock to retain their services over the next five years, reward their
efforts in the participation of the successful succession and transition of the company operations to the new
senior management team, and incentivize continued sales and profit growth in accordance with targets set by
the Board of Directors.
On January 25, 2008, the Board of Directors modified Bradley T. MacDonald’s compensation package for
his role in the succession plan and business development initiatives as outlined in the December 31, 2006 10-K.
The Board cancelled the 100,000 options granted to Mr. MacDonald on February 8, 2006 and replaced them with
a restricted stock grant of 42,000 shares. The restricted shares will vest over a period of 3 years beginning on
January 25, 2009.
98
Outstanding Equity Awards at Fiscal Year-End Table
Option Awards
Stock Awards
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
rights
That
Have Not
Vested
Equity
incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
rights
Number
Shares
or Units
of Stock
That
Have Not
Vested
Market
Value of
Shares or
Units of
Stock that
have not
Vested
Vested
(#)(1)
($)(2)
(#)
($)
Number of
Securities
Underlying
Unexercised
Options (#)
Number of
Securities
Underlying
Unexercised
Options (#)
Un-
Option
Exercise
Option
Expiration
Exercisable
Exercisable Price ($)
Date
-
-
-
204,000
6,238,320
-
-
-
-
-
303,667
9,286,137
-
-
10,000
-
3.83
10/28/10
-
-
-
-
-
-
-
-
-
252,000
7,706,160
91,000
2,782,780
-
-
-
-
99
Name
Bradley T.
MacDonald
Chairman
of the
Board
Michael S.
McDevitt
Chief
Executive
Officer,
CFO
Leo V.
Williams
Executive
Vice
President
Margaret
Sheetz
Chief
Operating
Officer,
President
Brendan N.
Connors
VP of
Finance
Each option has a five year life and an exercise price per share equal to 100% of the estimated fair
value of our common stock on the date of grant.
(1) The restricted stock grants vest over five and six years of service as described below under
“Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards”
(2) The market value of shares of stock that have not vested is based on the closing price of our
common stock on December 31, 2009, or $30.58 per share.
100
2009 Option Exercises and Stock Vested Table
The following table sets forth information regarding option exercises and stock vesting for the Named
Executive Officers during 2009 and the resulting value realized.
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise
Value
Realized on
Exercise
Number of Shares
Acquired on
Vesting
Value
Realized on
Vesting
Name
(#)
($)(1)
(#)
($)(2)
Bradley T. MacDonald
Executive Chairman of
the Board
-
-
-
-
20,000
14,000
20,000
9,000
285,000
102,340
131,000
53,280
84,895
1,369,356
15,000
88,800
Michael S. McDevitt
Chief Executive Officer,
CFO
Leo V. Williams
Executive Vice
President
Margaret Sheetz
Chief Operating Officer,
President
-
-
-
-
Brendan N. Connors
VP of Finance
19,805
319,455
33,333
30,000
24,000
9,000
243,664
427,500
157,200
53,280
-
-
15,000
88,800
25,000
25,000
20,000
8,000
3,000
5,000
10,000
8,000
4,000
182,750
356,250
131,000
47,360
17,760
36,550
142,500
52,400
23,680
101
(1) Represents the difference between the exercise price and the fair market value of the common stock
on the date of exercise, multiplied by the number of options exercised.
(2) Represents the number of restricted shares vested, and the number of shares vested multiplied by
the fair market value of the common stock on the vesting date.
Equity Compensation Plan Information at Fiscal Year Ended December 31, 2009
Number of
securities to be
issued upon
exercise of
outstanding
options, war-
rants
and rights
(a)
10,000 (1)
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
(b)
$3.83
-
-
Number of
securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
1,442,500
(c)
-
Plan category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
(1) Consists of 10,000 shares of common stock issuable upon the exercise of outstanding options
102
2009 Non-Qualified Deferred Compensation Table
The following table sets forth all non-qualified deferred compensation of the Named Executive Officers
for the fiscal year ended December 31, 2009.
Executive
Contributions
in Last FY
Company
Contributions
in Last FY
Aggregate
Earnings in
Last FY
Aggregate
Withdrawals/
Distributions
Aggregate
Balance at
Last FYE
($)
($)(1)
($)
($)
($)
-
-
-
-
-
-
-
-
-
-
247,000
-
1,040,000
-
-
-
-
-
-
-
-
-
-
-
-
Bradley T. MacDonald
Chairman of the
Board
Michael S. McDevitt
Chief Executive
Officer, CFO
Leo V. Williams
Executive Vice
President
Margaret Sheetz
Chief Operating
Officer, President
Brendan N. Connors
VP of Finance
(1) All amounts are reported in compensation on the “2009 Summary Compensation Table”
Deferred Compensation Plans
We maintain a non-qualified deferred compensation plan, effective September 10, 2003, for Senior
Executive management. Currently, Bradley MacDonald is the only participant in the plan. Under the deferred
compensation plan that became effective in 2003, executive officers of the Company, including the Named
Executive Officers, may defer a portion of their salary and bonus (performance-based compensation) annually.
A participant may elect to receive distributions of the accrued deferred compensation in a lump sum or in
installments upon retirement
Each participating officer may request that the deferred amounts be allocated among several available
investment options established and offered by the Company. These investment options provide market rates of
return and are not subsidized by the Company. The benefit payable under the plan at any time to a participant
following termination of employment is equal to the applicable deferred amounts, plus or minus any earnings or
losses attributable to the investment of such deferred amounts. The amount of compensation in any given fiscal
year that is deferred by each Named Executive Officer is included in the Summary Compensation Table under
the column headings “Salary” or “Non-Equity Incentive Plan Compensation”, as appropriate.
103
The Company has established a trust for the benefit of participants in the deferred compensation plan.
Pursuant to the terms of the trust, as soon as possible after any deferred amounts have been withheld from a
plan participant, the Company will contribute such deferred amounts to the trust to be held for the benefit of
the participant in accordance with the terms of the plan and the trust.
Retirement payouts under the plan upon an executive officer’s retirement from the Company are
payable either in a lump-sum payment or in annual installments over a period of up to ten years. Upon death,
disability or termination of employment, all amounts shall be paid in a lump-sum payment as soon as
administratively feasible.
In 2009, there were no contributions made by the Company to Bradley T. MacDonald’s deferred
compensation plan.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards
We have entered into employment agreements with certain Named Executive Officers, certain terms of
which are summarized below.
Bradley T. MacDonald. Mr. MacDonald entered into a five year employment agreement effective
February 8, 2006. Mr. MacDonald was granted 100,000 options over a five year vesting period beginning on
February 8, 2007 in consideration for his five year commitment and to align his interest with the interests
of long-term shareholders On January 25, 2008, the Board of Directors modified Bradley T. MacDonald’s
compensation package for his role in the succession plan and business development initiatives as outlined in
the December 31, 2006 10-K. The Board cancelled the 100,000 options granted to Mr. MacDonald on February
8, 2006 and replaced them with a restricted stock grant of 42,000 shares. The restricted shares will vest over a
period of 3 years beginning on January 25, 2009. Upon termination of Mr. MacDonald’s employment by the
Company without cause, or upon his resignation for good reason, he would be entitled to receive an amount
equal to one and a half times the sum of his highest annualized salary payable in equal monthly installments 30
days after his termination of employment for a period of one year.
Michael S. McDevitt. Mr. McDevitt entered into a six year employment agreement effective
February 8, 2006. Mr. McDevitt was granted 200,000 shares of Medifast, Inc. restricted common stock over a six
year vesting period beginning on February 8, 2006 in consideration for his six year commitment and to align
his interests with the interests of long-term shareholders. Upon termination of Mr. McDevitt’s employment by
the Company without cause, or upon his resignation for good reason, he would be entitled to receive an amount
equal to one and a half times the sum of his highest annualized salary payable in equal monthly installments 30
days after his termination of employment for a period of one year.
Margaret Sheetz. Ms. Sheetz entered into a six year employment agreement effective February 8,
2006. Ms. Sheetz was granted 150,000 shares of Medifast, Inc. restricted common stock over a six year vesting
period beginning on February 8, 2006 in consideration for his six year commitment and to align her interests
with the interests of long-term shareholders. Upon termination of Ms. Sheetz’s employment by the Company
104
without cause, or upon her resignation for good reason, she would be entitled to receive an amount equal to one
and a half times the sum of his highest annualized salary payable in equal monthly installments 30 days after
her termination of employment for a period of one year.
Brendan N. Connors. Mr. Connors entered into a six year employment agreement effective February
8, 2006. Mr. Connors was granted 30,000 shares of Medifast, Inc. restricted common stock over a six year
vesting period beginning on February 8, 2006 in consideration for his six year commitment and to align his
interests with the interests of long-term shareholders. Upon termination of Mr. Connors’ employment by the
Company without cause, or upon his resignation for good reason, he would be entitled to receive an amount
equal to one and a half times the sum of his highest annualized salary payable in equal monthly installments 30
days after his termination of employment for a period of one year.
Potential Payments upon Termination or Change in Control
As of December 31, 2009, the Company had entered into employment agreements with each of the
Named Executive Officers. As described in more detail above under “Narrative Disclosure to Summary
Compensation Table and Grants of Plan-Based Awards” The employment agreements with the Named
Executive Officers generally provide for the payment of benefits if the executive’s employment with the
Company is terminated either by the Company without Cause or by the executive for Good Reason. The
employment agreements with the Named Executive Officers do not provide for any additional payments or
benefits upon a termination of employment by the Company for Cause, upon the executive’s resignation other
than for Good Reason, as applicable, or upon the executive’s death or disability. Upon termination by the
Company without cause, or upon his or her resignation for good reason, all of the Named Executive officers
are entitled to receive an amount equal to one and a half times his or her highest annualized base salary
payable in equal monthly installments 30 days after his or her termination of employment. If a named
executive had been terminated without cause on December 31, 2009 they would have received the following
amounts:
Bradley T. MacDonald
Michael S. McDevitt
Margaret Sheetz
Brendan N. Connors
(1) Based on 2009 salary
Severance ($) (1)
$337,500
$277,500
$232,500
$187,500
If there were a change in control, which is defined as a sale of the majority of the assets of the company or a
change of control of the Board of Directors as a result of a third party shareholder acquiring or holding over 10%
105
of the common stock and attempting to nominate a majority of the Board of Directors in favor of his/her share-
holder block, the executives would have received the following amounts as of December 31, 2009:
Severance ($)(1)
Accelerated Vesting of
Stock Awards ($)(2)
Total
$337,500
277,500
232,500
187,500
$6,238,320
$6,575,820
9,286,137
7,606,160
2,782,780
9,563,637
7,838,660
2,970,280
Bradley T. MacDonald
Michael S. McDevitt
Margaret Sheetz
Brendan N. Connors
(1) Based on 2009 salary.
(2) Accelerated vesting of stock awards were based on NYSE close price of the Common Shares
on December 31, 2009 of $30.58 per share.
Compensation Polices and Risk
Medifast, Inc. does not believe that its compensation policies and practices create risks that are
reasonably likely to have a material adverse effect on Medifast, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table shows as of December 31, 2009, the amount and percentage of our outstanding
common stock beneficially owned by each person who is known by us to beneficially own more than 5% of our
outstanding common stock.
Name and Address of
5% Beneficial Owner
Shares Beneficially
Owned (1)
Percent of
Outstanding
Common Stock
FMR, LLC
82 Devonshire Street
Boston, MA 02109
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
1,185,000
7.7%
835,832
5.42%
106
The following table shows as of March 26, 2010 the amount and percentage of our outstanding common
stock beneficially owned (unless otherwise indicated) by each of our (i) directors and nominees for directors, (ii)
Named Executive Officers and (iii) our directors, nominees for director and executive officers as a group.
Name of Beneficial Owner
Shares Beneficially
Owned (1)(2)
Shares Acquirable Within
60 days
Percent of Outstanding
Common Stock (%)
Bradley T. MacDonald (3)
Michael S. McDevitt
Margaret Sheetz
Brendan N. Connors, CPA
Donald F. Reilly
Michael C. MacDonald
Charles P. Connolly
John P. McDaniel
Catherine T. Maguire
Leo V. Williams
George J. Lavin, Jr., Esq.
Barry B. Bondroff, CPA
Jeannette M. Mills
All directors, nominees for
directors and executive
officers as a group (13 per-
sons)
797,050
420,012
293,692
108,484
81,483
69,197
37,575
24,500
8,500
16,000
24,200
17,000
12,500
1,910,193
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5.18%
2.73%
1.91%
*
*
*
*
*
*
*
*
*
*
12.40%
*Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission. Under those rules and for purposes of the table above (a) if a person has decision making
power over either the voting or the disposition of any shares, that person is generally deemed to be a
beneficial owner of those shares; (b) if two or more persons have decision making power over either the
voting or the disposition of any shares, they will be deemed to share beneficial ownership of those
shares, in which case the same shares will be included in share ownership totals for each of those
persons; and (c) if a person held options to purchase shares that were exercisable on, or became
exercisable within 60 days of, March 30, 2010, that person will be deemed to be the beneficial owner of
those shares and those shares (but not shares that are subject to options held by any other stockholder)
will be deemed to be outstanding for purposes of computing the percentage of the outstanding shares
that are beneficially owned by that person. Information supplied by officers and directors.
(2) Unless otherwise noted, reflects the number of shares that could be purchased by exercise of options
available at March 26, 2010, or within 60 days thereafter under our stock option plans.
(3) The shares set forth as beneficially owned by Mr. Bradley T. MacDonald include 133,402 shares
107
owned by his wife Shirley MacDonald, and 85,167 shares owned by the MacDonald Family Trust. His
daughter, Margaret Sheetz, beneficially owns 293,692 shares which added to Bradley T. MacDonald’s
797,050 beneficially owned shares results in 1,090,742 shares owned by the MacDonald family.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 2009, there were no related party transactions.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees to Independent Registered Public Accountants for Fiscal 2009 and 2008
The following services were provided by Friedman, LLP and Bagell, Josephs, Levine & Co during fiscal
2009 and 2008:
Audit Fees(1)
Tax fees(2)
All other fees
2009 (3)
2008
$184,000
$154,000
43,000
29,000
-
-
Total
$227,000
$183,000
(1) Audit fees consist of fees for professional services rendered for the audit of the Company’s
consolidated financial statements included in the Company’s Annual Report on Form 10-K, including
the audit of internal controls required by Section 404 of the Sarbanes-Oxley Act of 2002, and the review
of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and for services
that are normally provided by the auditor in connection with statutory and regulatory filings or
engagements.
(2) Tax fees were billed for tax compliance services
(3) On January 1, 2010 Bagell, Josephs, Levine, and Co. merged with Friedman, LLP. Friedman, LLP
performed the audit for the year-ended December 31, 2009.
108
FINANCIALS
Part iV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1. Financial Statements
See Index to the Consolidated Financial Statements on page 54 of this Annual Report
2. Financial Statement Schedules
None, as all information required in these schedules is included in the Notes to the Consolidated
Financial Statements.
3. Exhibits
Reference is made to the Exhibit Index on page 54 of this Annual Report for a list of exhibits required by Item
601 of Registration S-K to be filed as part of this Annual Report.
109
MEDIFAST, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms
111-112
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
113
114
115
116
117
110
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Medifast, Inc.
Owing Mills, Maryland
We have audited the accompanying consolidated balance sheet of Medifast, Inc. and subsidiaries (the
“Company”) as of December 31, 2009 and the related consolidated statements of operations, stockholders’
equity and other comprehensive income, and cash flows for the year then ended. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial
statements based on our audit. The consolidated financial statements of Medifast, Inc. and subsidiaries as of
December 31, 2008 and for the each of the two years in the period ended December 31, 2008 were audited by
other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated March 6, 2009.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements and schedule. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Medifast, Inc. and subsidiaries at December 31, 2009, and the results of its
operations and its cash flows for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
As discussed above, the consolidated financial statements of Medifast, Inc and subsidiaries were
audited by other auditors who have ceased operations. As discussed in Note 17, these financial statements have
been restated. We audited the adjustments described in Note 17 that were applied to restate the December 31,
2008 and 2007 consolidated financial statements. In our opinion, such adjustments are appropriate and have
been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2008 and
2007 consolidated financial statements of the Company other than with respect to such adjustments and
accordingly, we do not express an opinion or any other form of assurance on the 2008 and 2007 consolidated
financial statements taken as a whole.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Medifast, Inc. and subsidiaries internal control over financial reporting as of December
31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
111
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 29 , 2010 expressed
an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ Friedman LLP
Marlton, New Jersey
March 29, 2010
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Medifast, Inc.
Owing Mills, Maryland 21117
We have audited the accompanying consolidated balance sheets of Medifast, Inc. as of December 31,
2008 and 2007, and the related consolidated statements of income, changes in stockholders’ equity and
accumulated other comprehensive income, and cash flows for each of the years in the three-year period ended
December 31, 2008. Medifast, Inc.’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Medifast, Inc. as of December 31, 2008 and 2007, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2008 in
conformity with accounting principles generally accepted in the United States of America.
/s/Bagell, Josephs, Levine & Company, L.L.C.
Marlton, NJ 08053
March 6, 2009
The report is a copy of the previously issued report.
The predecessor auditor has not reissued the report.
112
MEDIFAST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2009 and 2008
ASSETS
Current assets:
Cash and cash equivalents
2009
(Restated) 2008
$12,708,000
$1,841,000
Accounts receivable-net of allowance for sales returns and doubtful accounts of $100,000
676,000
448,000
Inventory
Investment securities
Deferred compensation
Prepaid expenses and other current assets
Note receivable - current
Current portion of deferred tax asset
Total current assets
Property, plant and equipment - net
Trademarks and intangibles - net
Deferred tax asset, net of current portion
Note receivable, net of current assets
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses
Income taxes payable
Line of credit
Deferred compensation payable
Current maturities of long-term debt
Total current liabilities
Other liabilities
Long-term debt, net of current portion
Deferred tax liability- non current
Total liabilities
Stockholders' Equity:
11,232,000
13,856,000
3,594,000
1,040,000
5,334,000
46,000
100,000
1,099,000
792,000
3,165,000
180,000
100,000
34,730,000
21,481,000
23,237,000
21,709,000
4,104,000
5,547,000
193,000
112,000
379,000
150,000
1,080,000
350,000
$62,755,000
$50,317,000
4,966,000
5,130,000
22,000
102,000
-
3,164,000
399,000
796,000
261,000
257,000
6,183,000
8,914,000
5,444,000
1,553,000
4,313,000
1,869,000
13,180,000
15,096,000
Preferred stock, $.001 par value (1,500,000 authorized, no shares issued and outstanding)
-
-
Common stock; par value $.001 per share; 20,000,000 shares authorized;
15,438,941 issued and 15,031,103 outstanding and 14,585,960 issued and 14,313,768 shares
outstanding
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Less: cost of 367,838 and 272,192 shares of common stock in treasury
Total stockholders' equity
16,000
15,000
28,456,000
25,250,000
159,000
(389,000)
24,264,000
12,301,000
(3,320,000)
(1,956,000)
49,575,000
35,221,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$62,755,000
$50,317,000
The accompanying notes are an integral part of these consolidated financial statements
113
MEDIFAST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, (000’s)
Revenue
Cost of sales
Gross profit
(Restated)
(Restated)
2009
2008
2007
$165,618
(40,293)
125,325
$105,445
(25,332)
80,113
$83,779
(21,464)
62,315
Selling, general, and administration
(105,959)
(71,914)
(56,600)
Income from operations
19,366
8,199
5,715
Other income (expense):
Interest expense
Interest income
Other income (expense)
Income before provision for income
taxes
Provision for income taxes
Net income attributable to common
shareholders
(145)
155
(83)
(73)
19,293
(7,330)
(366)
149
(132)
(349)
(387)
105
110
(172)
7,850
5,543
(3,016)
(2,117)
$11,963
$4,834
$3,426
Basic earnings per share
Diluted earnings per share
$0.89
$0.81
$0.37
$0.34
$0.26
$0.25
Weighted average shares outstanding -
Basic
Diluted
13,515,318
14,736,639
13,126,534
14,329,525
12,960,930
13,644,149
The accompanying notes are an integral part of these consolidated financial statements
114
MEDIFAST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME
Years Ended December 31, 2009, 2008 (As restated), and 2007 (As restated)
Balance at December 31, 2006, as
previously reported
Adjustments
Balance, December 31, 2006, as
restated
Warrants converted to common stock
Common stock issued to Directors
Options excercised to common stock
FASB 123R vesting
Vesting of unearned compensation
Repurchase of treasury stock
Number
of Shares
Par Value
$0.001
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other comp
income/(loss)
Treasury
Stock
Total
13,631,898
$14,000
$23,273,000
$5,981,000
$334,000
($1,686,000)
$27,916,000
(1,941,000)
(1,941,000)
13,631,898
$14,000
$23,273,000
$4,040,000
$334,000
($1,686,000)
$25,975,000
40,000
9,700
27,500
100
100
100
192,000
31,000
24,000
101,000
641,000
192,100
31,100
24,100
101,000
641,000
(309,000)
(309,000)
Treasury shares issued to employees
(300)
(24,000)
24,000
Net Loss- unrealized loss
on investments
Net income
(13,000)
3,427,000
(300)
(13,000)
3,427,000
Balance, December 31, 2007
13,709,098
$14,000
$24,238,000
$7,467,000
$321,000
($1,971,000)
$30,069,000
Common stock issued to Directors
Options exercised to common stock
Shares issued to Executives and
Directors with 2 to 5 year vesting
Vesting of unearned compensation to
executives and directors
Cancellation of options and reissuance
of restricted shares
Treasury shares issued in legal
settlement
Net Loss- unrealized loss
on investments
Net income
37,000
61,112
736,750
100
100
700
152,000
72,000
-
851,000
42,000
100
(75,000)
(43,000)
152,100
72,100
700
851,000
(74,900)
12,000
58,000
12,000
(710,000)
4,834,000
(710,000)
4,834,000
Balance, December 31, 2008
14,585,960
$15,000
$25,250,000
$12,301,000
($389,000)
($1,956,000)
$35,221,000
49,000
133,334
44,647
586,000
100
100
100
700
207,000
331,000
214,000
-
303,000
2,151,000
Common stock issued to Directors
Options exercised to common stock
Warrants converted to common stock
Shares issued to Executives and
Directors with 2 to 5 year vesting
Fair value adjustment for stock
compensation tax benefit
Vesting of unearned compensation to
executives and directors
Receipt of treasury stock as payment
of note receivable
Purchase of treasury stock on
open market
Net Gain- unrealized gain on investments
Net income
(331,000)
207,100
100
214,100
700
303,000
2,151,000
(931,000)
(931,000)
(102,000)
(102,000)
548,000
11,963,000
548,000
11,963,000
Balance, December 31, 2009
15,398,941
$16,000
$28,456,000
$24,264,000
$159,000
($3,320,000)
$49,575,000
The accompanying notes are an integral part of these consolidated financial statements.
115
MEDIFAST, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities from continuing operations:
Depreciation and amortization
Realized loss on investment securities
Common stock issued for services
Treasury stock issued in legal settlement
Stock options vested during period
Stock options cancelled during period
Excess tax benefits from share-base payments arrangements
Vesting of unearned compensation
Net change in other comprehensive (loss) income
Deferred tax asset
Deferred tax liability
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable
(Increase) Decrease in inventory
(Increase) Decrease in prepaid expenses & other current assets
(Increase) Decrease in deferred compensation
(Increase) in prepaid taxes
(Increase) in other assets
Increase (Decrease) in accounts payable and accrued expenses
Increase (Decrease) in income taxes payable
Net cash provided by operating activities
Cash Flow from Investing Activities:
(Purchase) Sale of investment securities, net
(Purchase) of property and equipment
(Purchase) of intangible assets
Net cash (used in) investing activities
Cash Flow from Financing Activities:
Issuance of common stock, options and warrants
Proceeds (Repayment) of long-term debt, net
Increase (Decrease) in line of credit
Decrease in note receivable
Excess tax benefits from share-based payment arrangements
(Purchase) of treasury stock
Net cash provided by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS
Cash and cash equivalents - beginning of the period
Cash and cash equivalents - end of period
Supplemental disclosure of cash flow information:
Interest paid
Income taxes
Supplemental disclosure of non cash activity:
Common shares issued for options or warrants
Treasury stock issued in legal settlement
Line of credit converted to long-term debt
Treasury stock received in payment of note receivable
2009 (Audited)
(Restated) 2008 (Audited)
(Restated) 2007 (Audited)
$11,963,000
$4,834,000
$3,426,000
$5,267,000
$4,574,000
81,000
207,000
-
-
-
303,000
2,151,000
550,000
(43,000)
(316,000)
(228,000)
2,624,000
(452,000)
(110,000)
216,000
152,000
70,000
-
(77,000)
-
852,000
(711,000)
110,000
365,000
43,000
(4,675,000)
693,000
282,000
(1,413,000)
(1,131,000)
(29,000)
(162,000)
(80,000)
20,313,000
(2,579,000)
(5,118,000)
(235,000)
(7,932,000)
214,000
1,670,000
(3,163,000)
170,000
(303,000)
(102,000)
(1,514,000)
10,867,000
1,841,000
$12,708,000
$ 145,000
$ 9,167,000
$ -
$ -
$ -
$ 931,500
(251,000)
850,000
(700,000)
5,496,000
129,000
(7,429,000)
(13,000)
(7,313,000)
30,000
(264,000)
1,565,000
132,000
-
-
1,463,000
(354,000)
2,195,000
$1,841,000
$ 367,000
$3,661,000
$ 30,000
$ 70,000
$ -
$ -
3,471,000
103,000
31,000
-
100,000
-
39,000
641,000
(13,000)
(54,000)
(766,000)
(43,000)
(926,000)
(128,000)
(140,000)
-
(52,000)
1,367,000
898,000
7,954,000
(4,000)
(5,151,000)
(2,814,000)
(7,969,000)
216,000
(586,000)
1,706,000
137,000
(39,000)
(309,000)
1,125,000
1,110,000
1,085,000
$2,195,000
$ 387,000
$1,790,000
$ -
$ -
$2,156,000
$ -
The accompanying notes are an integral part of these consolidated financial statements
116
Medifast, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009, 2008, 2007
1. BACKGROUND
Nature of the Business
Medifast, Inc. (the “Company” or “Medifast” is a Delaware corporation, incorporated in 1980. The
Company’s operations are primarily conducted through six of its wholly owned subsidiaries, Jason
Pharmaceuticals, Inc. (“Jason”), Take Shape For Life, Inc. (“TSFL”), Jason Enterprises, Inc., Jason Properties,
LLC, and Seven Crondall, LLC. The Company is engaged in the production, distribution, and sale of weight
management and disease management products and other consumable health and diet products. Medifast, Inc.’s
product lines include weight and disease management, and meal replacement products manufactured in
a modern, FDA approved facility in Owings Mills, Maryland.
The Company is engaged in the manufacturing and distribution of Medifast® branded and private label
weight and disease management products. These products are sold through various channels of distribution, to
include web, call center, independent health advisors, medical professionals, weight loss clinics, direct consumer
marketing supported via the phone and the web. The processing, formulation, packaging, labeling and
advertising of the Company’s products are subject to regulation by one or more federal agencies, including the
Food and Drug Administration, the Federal Trade Commission, the Consumer Product Safety Commission, the
United States Department of Agriculture, and the United States Environmental Protection Agency.
2. Summary of Significant Accounting Policies
Significant accounting policies followed in the preparation of the consolidated financial statements are
as follows:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries,
Jason Pharmaceuticals, Inc., Take Shape For Life, Inc., Seven Crondall Associates, LLC, Jason Properties, LLC,
and Jason Enterprises, Inc. All inter-company accounts have been eliminated.
Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flow, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less to be cash equivalents. At
December 31, 2009, the Company had $3.8 million in miscellaneous short-term investments through Merrill
Lynch that are considered cash equivalents due to terms of maturity, and $8.9 million in operating checking
accounts.
117
At December 31, 2008, the Company had $923,000 in miscellaneous short-term investments through
Merrill Lynch that are considered cash equivalents due to terms of maturity, and $918,000 in operating checking
accounts.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded net of reserves for sales returns and allowances, and net of provisions
for doubtful accounts. Allowances for sales returns and discounts are based on an analysis of historical trends,
and allowances for doubtful accounts are based primarily on an analysis of aging accounts receivable balances
and on the creditworthiness of the customer as determined by credit checks and analysis, as well as the
customer’s payment history.
Inventory
Inventories consist principally of packaged meal replacements held in the Company’s warehouse.
Inventory is stated at the lower of cost or market, 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.
Advertising
Advertising costs such as preparation, layout, design and production of advertising are deferred.
They are expensed when the advertisement is first used, except for the costs of executory contracts, which are
amortized as performance under the contract is received. Advertising costs deferred at December 31, 2009, 2008,
and 2007, were $544,000, $557,000, and $1,014,000, respectively. Advertising expense for the years ended
December 31, 2009, 2008, and 2007 amounted to $17,400,000, $17,800,000, and $18,400,000, respectively.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. The
Company computes depreciation and amortization using the straight-line method over the estimated useful
lives of the assets acquired as follows:
Building and building improvements
Equipment and fixtures
Vehicles
39 years
3 - 15 years
5 years
The carrying amount of all long-lived assets is evaluated periodically to determine whether adjust-
ment to the useful life or to the unamortized balance is warranted. Such evaluation is based principally on the
expected utilization of the long-lived assets and the projected undiscounted cash flows of the operations in which
the long-lived assets are used.
118
In accordance with authoritative guidance on property, plant and equipment ASC 360, long – lived assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized
by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, which requires an asset and
liability approach to financial accounting and reporting for income taxes. Deferred income taxes and liabilities
are computed annually for differences between the financial statement and the tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be realized.
Earnings per Share
Basic earnings per share (“EPS”) computations are calculated utilizing the weighted average number of
common shares outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted
average number of common shares outstanding adjusted for the effect of dilutive common stock equivalents.
The following table sets forth the computation of basic and diluted EPS for the fiscal years ended December 31:
Numerator:
Net income attributable to Medifast, Inc.
$11,963,000
$4,834,000
$3,426,000
2009
(Restated) 2008
(Restated) 2007
Denominator:
Weighted average shares of common stock
outstanding
13,515,318
13,126,534
12,960,930
Effect of dilutive common stock equivalents
1,221,321
1,202,991
683,219
Weighted average diluted common shares
outstanding
14,736,639
14,329,525
13,644,149
EPS attributable to Medifast, Inc.
Basic
Diluted
$0.89
$0.81
$0.37
$0.34
$0.26
$0.25
119
Revenue Recognition
Revenue is recognized net of discounts, rebates, promotional adjustments, price adjustments, returns
and other potential adjustments upon shipment and passing of risk to the customer and when estimates of
are reasonably determinable, collection is reasonably assured and the Company has no further performance
obligations.
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.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash, certificates of deposit,
accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or
short-term maturity of the financial instruments.
The Company believes that its indebtedness approximates fair value based on current yields for debt
instruments with similar terms.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash, certificates of
deposit, investment securities and trade receivables. Cash, money markets and investments exceed the federal
insurance coverage by $11,588,000 and $944,000 respectively. The Company securities at December 31, 2009
and 2008, include amounts deposited with multiple financial institutions. The Company markets its products
primarily to medical professionals, clinics, and Internet medical sales and has no substantial concentrations of
credit risk in its trade receivables.
As of December 31, 2009 the Company had one customer that individually represented 10% of accounts
receivable. In 2008, the Company had two customers that individually represented over 10% of accounts receiv-
able and in the aggregate, approximately 43% of the accounts receivable.
Deferred Compensation Plans
We maintain a non-qualified deferred compensation plan for Senior Executive management. Currently,
Bradley MacDonald is the only participant in the plan. Under the deferred compensation plan that
became effective in 2003, executive officers of the Company may defer a portion of their salary and bonus
(performance-based compensation) annually. A participant may elect to receive distributions of the accrued
120
deferred compensation in a lump sum or in installments upon retirement
Each participating officer may request that the deferred amounts be allocated among several available
investment options established and offered by the Company. These investment options provide market rates of
return and are not subsidized by the Company. The benefit payable under the plan at any time to a participant
following termination of employment is equal to the applicable deferred amounts, plus or minus any earnings
or losses attributable to the investment of such deferred amounts. The Company has established a trust for the
benefit of participants in the deferred compensation plan. Pursuant to the terms of the trust, as soon as possible
after any deferred amounts have been withheld from a plan participant, the Company will contribute such
deferred amounts to the trust to be held for the benefit of the participant in accordance with the terms of the
plan and the trust.
Retirement payouts under the plan upon an executive officer’s retirement from the Company are
payable either in a lump-sum payment or in annual installments over a period of up to ten years. Upon
death, disability or termination of employment, all amounts shall be paid in a lump-sum payment as soon as
administratively feasible.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of ASC 718 Compensation – Stock
Compensation which establishes the accounting for employee stock-based awards. Under the provisions of ASC
718, stock-based compensation is measured at the grant date, based on the calculated fair value of the award,
and is recognized as an expense over the requisite employee service period (generally the vesting period of the
grant).. The Company recognized stock-based compensation for awards issued under the Company’s stock option
plans in other income/expenses included in the Condensed Consolidated Statement of Operations. Additionally,
no modifications were made to outstanding stock options prior to the adoption of ASC 718, and no cumulative
adjustments were recorded in the Company’s financial statements.
Recent Accounting Pronouncements
In November 2008, the FASB ratified an accounting pronouncement which clarifies how to account for
certain transactions involving equity method investments. The initial measurement, decreases in value and
changes in the level of ownership of the equity method investment are addressed. The pronouncement was
effective for the Company beginning on January 1, 2009 and was applied prospectively. The adoption of the pro-
nouncement did not have a material impact on the Company’s consolidated financial position and results
of operations.
In June 2009, the FASB issued the Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. The pronouncement is effective for interim and annual periods
ending after September 15, 2009. The adoption of the pronouncement did not have any impact on the Company’s
consolidated financial position and results of operations.
121
Investments
In accordance with ASC 320, “Investments – Debt and Equity Securities”, securities are classified into
three categories: held-to-maturity, available-for-sale and trading. The Company’s investments consist of debt and
equity securities classified as available-for-sale securities. Accordingly, they are carried at fair value in
accordance with ASC 320. Further, according to ASC 320 the unrealized holding gains and losses for
available-for-sales securities are excluded from earnings and reported as a separate component of stockholders’
equity, unless the loss is classified as other than a temporary decline in market value.
Goodwill and Other Intangible Assets
In June 2001, the FASB issued ASC 350 “Intangibles – Goodwill and Other”. This statement addresses
financial accounting and reporting for acquired goodwill and other intangible assets and supersedes 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.
In addition, the Company has acquired other intangible assets, which include: customer lists,
non-compete agreements, trademarks, patents, and copyrights. The non-compete agreements were fully
amortized as of December 31, 2007. The customer lists are being amortized over a period ranging between 3
and 6 years based on management’s best estimate of the expected benefits to be consumed or otherwise used up.
The costs of patents and copyrights are amortized over 5 and 6 years based on their estimated useful life, while
trademarks representing brands with an infinite life, and are carried at cost and tested annually for
impairment as outlined below. Goodwill and other indefinite lived intangibles are tested annually for impair-
ment in the fourth quarter, and are tested for impairment more frequently if events and circumstances indicate
that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount
exceeds the asset’s fair value. The Company assesses the recoverability of its goodwill and other indefinite lived
assets by comparing the projected undiscounted 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.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources, including unrealized gains and
losses on marketable securities. The Company presents comprehensive income in its consolidated statements of
stockholders equity.
122
3. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITES
The following summarizes cash, cash equivalents, and marketable securities:
Cost
Unrealized
Gains
Unrealized
Losses
Accrued
interest
Estimated
Fair Value
Cash and cash equivalents
Demand deposits
$ 3,826,000
$ -
$ -
$ -
$ 3,826,000
Money market accounts
8,882,000
-
8,882,000
December 31, 2009
$ 12,708,000
$ -
$ -
$ -
$ 12,708,000
Investment Securities
Investment Securities
$ 3,504,000
$ 78,000
$ (10,000)
$ 22,000
$ 3,594,000
December 31, 2009
$ 3,504,000
$ 78,000
$ (10,000)
$ 22,000
$ 3,594,000
Cash and cash equivalents
Demand deposits
Money market accounts
$ 918,000
923,000
$ -
$ 918,000
-
923,000
December 31, 2008
$ 1,841,000
$ -
$ -
$ -
$ 1,841,000
Investment Securities
Investment Securities
$ 1,088,000
$ 11,000
$ 1,099,000
December 31, 2008
$ 1,088,000
$ -
$ -
$ 11,000
$ 1,099,000
The Company had a realized loss of $81,000, realized loss of $216,000 and realized gain of $103,000 for the years
ended December 31, 2009, 2008, and 2007, respectively.
4. INVENTORY
Inventory consist of the following at December 31, 2009 and 2008
Raw Materials
Packaging
Finished Goods
Total
2009
2008
$ 3,900,000
2,628,000
4,704,000
2,810,000
2,234,000
8,812,000
$ 11,232,000
13,856,000
123
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expense and other current assets as of December 31, 2009 and 2008, consist of the following:
Marketing and advertising
$1,832,000
$1,531,000
2009
2008
Supplies
Insurance
Taxes
745,000
546,000
413,000
90,000
2,211,000
1,131,000
$5,334,000
$3,165,000
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 2009 and 2008, consist of the following:
Land
Building and building improvements
Equipment and fixtures
Vehicle
Less accumulated depreciation
Property, plant and equipment net
2009
2008
$650,000
9,034,000
26,478,000
59,000
$36,221,000
12,984,000
$23,237,000
650,000
8,603,000
21,810,000
43,000
$31,106,000
9,397,000
$21,709,000
Substantially all of the Company’s property, plant and equipment are pledged as collateral for various
loans (see Note 12).
Depreciation expense for the years ended December 31, 2009, 2008, and 2007 were $3,634,000,
$2,751,000, and $2,139,000 , respectively. In 2007, the Company disposed of assets with an accumulated
depreciation of $95,000 relating to the closing of three corporately owned Medifast Weight Control Centers.
124
7. TRADEMARKS AND INTANGIBLES
The estimated future amortization expense of trademarks and intangible assets is as follows:
As of December 31, 2009
As of December 31, 2008
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Customer lists
$ 8,567,000
$ 6,086,000
$ 8,332,000
$ 4,649,000
Non-compete agreements
Trademarks, patents, and
copyrights
finite life
infinite life
Total
840,000
840,000
840,000
840,000
1,622,000
927,000
926,000
-
1,622,000
927,000
685,000
-
$ 11,956,000
$ 7,852,000
$ 11,721,000
$ 6,174,000
Amortization expense for the years ended December 31, 2009, 2008 and 2007 was as follows:
Customer lists
$ 1,392,000
$ 1,584,000
$ 1,096,000
2009
2008
2007
Non-compete agreements
Trademarks, patents, and
copyrights
Total trademarks and
intangibles
-
-
-
241,000
239,000
236,000
$ 1,633,000
$ 1,823,000
$ 1,332,000
Amortization expense is included in selling, general and administrative expenses.
The estimated future amortization expense of trademarks and intangible assets is as follows:
2010
2011
2012
2013
2014
1,182,000
1,181,000
746,000
63,000
5,000
125
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Trade payables
Sales commissions payable
Accrued payroll and related taxes
Total
2009
2008
$2,011,000
$3,658,000
2,645,000
312,000
1,303,000
169,000
$4,968,000
$5,130,000
9. COMMITMENTS AND CONTINGENCIES
The Company leases office space for Corporate offices as well as twenty-seven corporately owned Medi-
fast Weight Control Centers under lease terms ranging from three to five years with leases commencing in 2007,
2008 and 2009. Monthly payments under the Medifast Weight Control Centers leases range in price from $1,800
to $4,200. The Company is required to pay property taxes, utilities, insurance and other costs relating to the
leased facilities.
The Company leases large commercial printers for our printing operation that supports our sales
channels. The leases extend through December 2014. The annual lease payments are $1,062,000, $1,031,000,
$964,000, and $758,000 for the years ended December 31, 2010, 2011, 2012, and 2013 respectively.
The following is a schedule by years of future minimum rental and lease payments required under
operating lease that have initial or remaining non-cancelable lease terms in excess of one year as of December
31, 2009
For the Years Ending
December 31,
2010
2011
2012
2013
2014
Thereafter
2,174,000
2,116,000
1,966,000
1,311,000
661,000
294,000
Total minimum payments required
$ 8,522,000
Rent expense for the years ended December 31, 2009, 2008, and 2007 was $1,256,000, $956,000, and
$464,000 respectively.
There is no pending or threatened legal action that would have material adverse on the Company’s
consolidated financial position, results or operations or cash flows in future years.
126
10. INCOME TAXES
Significant components of the income tax benefit for the years ended December 31 are as follows:
A reconciliation between the provisions for income taxes calculated at the U.S. federal statutory income
tax rate and the consolidated income tax benefit in the consolidated statements of income for the years ended
December 31, 2007, 2008 and 2009 are as follows:
Provision at the U.S. federal
statutory rate
State taxes, net of federal
benefit
2009
2008
2007
34.0%
34.0%
34.0%
4.8%
3.2%
5.4%
Permanent differences
-0.8%
1.2%
-1.2%
Income tax expense
38.0%
38.4%
38.2%
Current:
Federal
State
2009
2008
2007
$ 6,276,000
$ 3,059,000
$ 1,213,000
695,000
432,000
84,000
Total Current
$ 6,971,000
$ 3,491,000
$ 1,297,000
Deferred:
Federal
State
Total deferred
$ 283,000
$ (390,000)
$ 672,000
76,000
(85,000)
359,000
(475,000)
148,000
820,000
Income tax expense
$ 7,330,000
$ 3,016,000
$ 2,117,000
Medifast, Inc.’s deferred income taxes reflect the net tax effect of temporary differences between the bases of
assets and liabilities for financial reporting purposes and their bases for income tax purposes. Significant
components of the Company’s deferred tax liabilities and assets as of December 31 are as follows:
2009
2008
2007
Deferred tax assets
Deferred compensation
$ 250,000
$ 208,000
Inventory overhead and write downs
43,000
42,000
Total deferred tax assets
Deferred Tax Liabilities
$ 293,000
$ 250,000
317,000
43,000
360,000
Depreciation and Amortization
$ (1,553,000)
$ (1,869,000)
(1,506,000)
Total deferred tax liabilities
$ (1,553,000)
$ (1,869,000)
$ (1,506,000)
127
11. Equity Instruments
On October 9, 1993 and as amended in May 1995, the Company adopted a stock option plan (“Plan”)
authorizing the grant of incentive and non-incentive options for an aggregate of 500,000 shares of the
Company’s common stock to officers, employees, directors and consultants. Incentive options are to be granted at
fair market value. Options are to be exercisable as determined by the stock option committee.
In November 1997, June 2002 and July 2004, the Company amended the Plan by increasing the num-
ber of shares of the Company’s common stock subject to the Plan by an aggregate of 200,000 shares, 300,000
shares and 250,000 shares respectively.
The following summarizes the stock option activity for the years ended December 31:
2009
2008
2007
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
143,334
$ 3.00
291,300
$ 4.19
321,579
$ 3.88
(133,334)
2.94
(28,334)
0.50
(27,500)
0.89
-
0.00
(119,632)
6.39
(2,779)
1.60
10,000
$ 3.83
143,334
$ 3.00
291,300
$ 4.19
10,000
$ 3.83
143,334
$ 3.00
211,300
$ 3.35
Outstanding
at beginning
of year
Options
exercised
Options
forfeited or
expired
Outstanding
at end of year
Options
exercisable at
year end
No stock options were granted in 2007 and 2008 or 2009.
128
The following table summarizes information about stock options outstanding and exercisable at
December 31, 2009:
Options Outstanding
Options Exercisable
Range of
Exercise Prices
Number
Outstanding
$3.83
10,000
10,000
Weighted
Average
Contractural
Life Remaining
(in Years)
0.83
Weighted
Average
Exercise
Price
$3.83
$3.83
Number
Exercisable
10,000
10,000
Weighted
Average
Exercise
Price
$3.83
$3.83
The Company has issued restricted stock to employees generally with terms ranging from three to six
years. The fair value 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 the restricted
stock activity:
Outstanding at January 1, 2009
Granted
Vested
Forfeited
Outstanding at December 31, 2009
Shares
1,019,835
586,000
(401,457)
-
1,204,378
Weighed-Average
Grant Date Fair Value
$ 4.42
6.33
5.36
-
5.57
The weighted-average grant-date fair value of restricted stock grants was $6.33, and $4.72 for the years
ended December 31, 2009, 2008, respectively. No restricted shares were granted in 2007. The total fair value
of restricted stock grants vested during the years ended December 31, 2009, 2008, and 2007 was $2,151,000,
$852,000 and $641,000, respectively.
129
12. LONG-TERM DEBT AND LINE OF CREDIT
Long -term debt as of December 31, 2009 and 2008, consist of the following:
$475,000 seven-year loan secured by the building and land at a variable rate
at LIBOR plus 250 bps, which was 2.74% on December 31, 2009. Due 2011
301,000
332,000
2009
2008
$5,000,000 revolving line of credit at the LIBOR rate plus 1.3%, which was
2.50% at December 31, 2009
$7,500,000 revolving line of credit at the LIBOR rate plus 1.3%, which was
2.50% at December 31, 2009
$3,000,000 ten-year term loan, with Merrill Lynch at LIBOR plus 1.3%, this
was 1.54% at December 31, 2009. Due 2017
$1,500,000 ten-year term loan, with Merrill Lynch at LIBOR plus 1.3%, this
was 1.54% at December 31, 2009. Due 2017
$2,600,000 3-year term loan, with Bank of America at Libor plus 200 bps,
which was 2.25% on December 31, 2009. Due 2012.
Less current portion
-
-
-
3,163,000
2,675,000
2,825,000
1,338,000
1,413,000
1,926,000
6,240,000
796,000
5,444,000
-
7,733,000
3,421,000
4,312,000
Future principal payments on long-term debt for the next 5 years are as follows:
2010
2011
2012
2013
2014
Thereafter
796,000
796,000
796,000
566,000
257,000
3,029,000
$6,240,000
The Company has established a $5.0 million revolving line of credit at LIBOR plus 1.75% with Bank of
America. The outstanding balance on our line of credit was $0 and $3,164,000 at December 31, 2009 and 2008,
respectively. Effective September 27, 2007, the 10-year term loan with an original balance of $3,539,000; the
3-year loan with an original balance of $366,000; and the line of credit balance with Mercantile Safe Deposit and
Trust Company was refinanced by Merrill Lynch into two ten year term loans for $1,500,000 and $3,000,000.
These loans are at LIBOR plus 1.3%, which was 1.54% on December 31, 2009. The term loans and line of credit
held at Bank of America contain customary covenants including covenants that, in certain circumstances,
restrict the Company’s ability to incur additional indebtedness, pay dividends on and redeem capital stock,
130
make other payments, including investments, sell its assets and enter into consolidations, mergers and trans-
fers of all or substantially all of its assets. The loan agreements also require the Company to maintain specified
financial ratios and satisfy certain financial condition tests. At December 31, 2009, the Company was in com-
pliance with all of the required financial ratios and also met all of the financial condition tests and expects to
continue to do so for the foreseeable future. All loans contain customary events of default. Upon the occurrence
of an event of default under the term loans or line of credit, the lenders there under may cease making loans
and declare amounts outstanding to be immediately due and payable. The loans are secured by two buildings,
together with an assignment of rents and security interest upon all fixtures now or hereafter located in the two
buildings.
13. EMPLOYMENT AGREEMENTS
The Board of Directors of Medifast, Inc. implemented a management succession plan which occurred
over the last 36 months. In doing so, they had 3 key executive officers sign 6-year employment contracts to
ensure that there will be minimal turnover in selected key management positions. The Executives associated
with this succession plan include Michael S. McDevitt, Chief Executive Officer and Chief Financial Officer,
Margaret MacDonald, Chief Operating Officer and President, and Brendan Connors, CPA, VP of Finance.
Bradley T. MacDonald, the Executive Chairman of the Board of Directors has signed and executed a new 5 year
employment agreement as the Executive Chairman of the Board of Directors and will provide on-going
executive mentoring, financial and M&A advice, and new business development for the Company.
On February 8, 2006, three executive officers of the Company signed 6-year employment contracts. The
officers received shares of common stock in varying amounts totaling 380,000 shares at $6.25 per share that will
be vested over 6 years. In addition, Bradley T. MacDonald, Chairman and CEO signed a new 5-year employment
agreement and was granted 100,000 stock options at $6.25 that will vest over 5 years beginning on February 8,
2007. The Board of Directors cancelled the 100,000 options granted to Mr. MacDonald on February 8, 2006 and
replaced them with a restricted stock grant of 42,000 shares. The restricted shares will vest over a period of 3
years beginning on January 25, 2009.
14. WARRANTS
During 2009, 80,000 warrants were exercised. The warrants were originally issued to an investment
banker for advisory and consulting services provided to the Company.
131
The Company has the following warrants outstanding for the purchase of its common stock:
Exercise Price Expiration Date
2009
2008
2007
December 31,
$4.80 January, 2009
$16.78 July, 2008
Weighted average exercise price
-
-
-
-
80,000
-
80,000
82,500
80,000
162,500
4.80
10.88
15. FAIR VALUE MEASUREMENTS
On January 1, 2008, the Company adopted SFAS No. 157 “Fair Value Measurements” (“SFAS 157”).
SFAS 157 defines fair value, provides a consistent framework for measuring fair value under Generally
Accepted Accounting Principles and expands fair value financial statement disclosure requirements. SFAS
157’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily
obtainable data from independent sources, while unobservable inputs reflect our market assumptions. SFAS 157
classifies these inputs into the following hierarchy:
Level 1 Inputs– Quoted prices for identical instruments in active markets.
Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and model-derived valuations whose inputs are
observable or whose significant value drivers are observable.
Level 3 Inputs– Instruments with primarily unobservable value drivers.
The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2009.
Fair Value Measurements on a Recurring Basis as of December 31, 2009
Assets
Level I
Level II
Level III
Total
Investment securities
$ 3,594,000
Cash equivalents
12,708,000
-
-
-
-
$ 3,594,000
12,708,000
Total Assets
Liabilities
$ 16,302,000
$ -
$ -
$ 16,302,000
6,240,000
-
-
6,240,000
Total Liabilities
$ 6,240,000
$ -
$ -
$ 6,240,000
132
16. BUSINESS SEGMENTS
Operating segments are components of an enterprise about which separate financial information is
available that is regularly reviewed by the chief operating decision maker about how to allocate resources and
in assessing performance. The Company has two reportable operating segments: Medifast and All Other. The
Medifast reporting segment consists of the following distribution channels: Medifast Direct, Take Shape For
Life, and Doctors. The All Other reporting segments consist of Medifast Weight Control Centers and the
Company’s parent company operations
The accounting policies of the segments are the same as those of the Company. The presentation and
allocation of assets, liabilities and results of operations may not reflect the actual economic costs of the
segments as stand-alone businesses. If a different basis of allocation were utilized, the relative contributions
of the segments might differ, but management believes that the relative trends in segments would likely not
be impacted.
The following tables’ present segment information for the years ended December 31, 2009, 2008, and 2007:
Year Ended December 31, 2009
Medifast
All Other
Eliminations
Consolidated
$165,618,000
40,293,000
100,775,000
5,267,000
(10,000)
7,330,000
Revenues, net
Cost of Sales
Other Selling, General and Administra-
tive Expenses
$150,037,000
$ 15,581,000
37,046,000
3,247,000
88,191,000
12,584,000
Depreciation and Amortization
4,266,000
1,001,000
Interest (net)
Provision for income taxes
Net income (loss)
17,000
(27,000)
7,330,000
-
$ 13,187,000
$ (1,224,000)
-
$ 11,963,000
Segment Assets
$ 32,829,000
$ 29,926,000
$ 62,755,000
133
(Restated)
Year Ended December 31, 2008
Medifast
All Other
Eliminations
Consolidated
Revenues, net
Cost of Sales
Other Selling, General and
Administrative Expenses
Depreciation and Amortization
Interest (net)
Provision for income taxes
Net income (loss)
$ 97,116,000
$ 8,329,000
23,611,000
59,334,000
1,721,000
8,138,000
3,613,000
39,000
3,016,000
961,000
178,000
-
$ 105,445,000
25,332,000
67,472,000
4,574,000
217,000
3,016,000
$ 7,503,000
$ (2,669,000)
-
$ 4,834,000
Segment Assets
$ 34,034,000
$ 16,283,000
$ 50,317,000
(Restated)
Year Ended December 31, 2007
Medifast
All Other
Eliminations
Consolidated
Revenues, net
Cost of Sales
Other Selling, General and
Administrative Expenses
Depreciation and Amortization
Interest (net)
Provision for income taxes
Net income (loss)
$ 78,861,000
$ 4,918,000
20,364,000
48,250,000
1,100,000
4,769,000
2,527,000
77,000
2,117,000
944,000
205,000
-
$ 83,779,000
21,464,000
53,019,000
3,471,000
282,000
2,117,000
$ 5,526,000
$ 2,100,000)
-
$ 3,426,000
Segment Assets
$ 25,386,000
$ 17,701,000
$ 43,087,000
134
17. RESTATEMENT OF FINANCIAL STATEMENTS
We are restating earnings for the years ended December 31, 2006, 2007, and 2008 due to an error in
the SFAS No. 109, “Accounting for Income Taxes” calculation. In general, under SFAS No. 109, deferred tax
assets and liabilities are recorded to reflect the future tax consequences attributable to the effects of differences
between the carrying amounts of assets and liabilities for financial reporting and for income tax purposes. Due
to the Company’s growth in past years, major infrastructure investments were made to include building
purchases for manufacturing, corporate offices and distribution, high speed manufacturing equipment and
blenders, a state of the art printing center operation, and IT systems including infrastructure and hardware. For
financial statement purposes, these assets are depreciated over the assets useful life. However, for tax
purposes, the depreciation can be accelerated which results in lower taxable income and potential tax refunds
which were realized for the years in which accelerated tax depreciation was elected for the Company. The lower
taxable income and tax refunds impacted the Company’s cash position positively and allowed for the further
investment in the vertically integrated Company infrastructure build. The resulting timing difference should
have resulted in a deferred tax liability and additional income tax provision expense in the year’s restated.
The restatements had no effect on 2009 revenues, operating income, pre-tax income, net income or
cash-flows. The restatements have no impact on the Company’s tax returns in any year.
During the audit of the Company’s financial statement for the year-ended December 31, 2009,
Management of Medifast, Inc. was first advised by Friedman, LLP, the Company’s independent registered public
accounting firm, that an error existed in its deferred tax account balances due to timing differences resulting
between depreciation expense for tax purposes versus financial statement purposes.
Management performed a detailed reconciliation of deferred tax accounts and the related provision
for income taxes for all tax years beginning in 2001 in order to quantify the potential balance adjustments. The
Company’s Management upon being advised by its Independent Auditor of the SFAS No. 109 calculation issue,
as part of its Sarbanes Oxley policy regarding internal controls regarding financial reporting, immediately
reported this issue to the Audit Committee which promptly initiated and conducted its review.
On March 29, 2010 management and the Audit Committee reviewed management’s findings and the
Audit Committee concluded that restating the consolidated financial statements for the years ended December
31, 2006, 2007, and 2008 is required. The Company is restating for errors identified in its deferred tax accounts
pertaining to (i) differences between the income tax basis and the financial reporting basis of long-lived assets
that were not reconciled to the deferred tax balances (ii) to properly apply a net operating loss to our deferred
tax and provision for income taxes for the years ended December 31, 2001, 2002, 2003, 2004, and 2005. The
effects of these restatements are included in this Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.
The correction of the errors noted in (i) above reduced 2008, 2007, and 2006 net income by $601,000
(.04 per diluted share), $411,000 ($.03 per diluted share), and $583,000 (.04 per diluted share), respectively. The
corrections noted in number (ii) above increased beginning of 2006 accumulated deficit by $1,358,000.
135
The following is a summary of the effects of these changes on the Company’s consolidated balance
sheets as of December 31, 2008, 2007, 2006, and 2005, as well as the effect of these changes on the Company’s
consolidated statements of income and cash flows:
For the Year Ended December 31, 2008
Deferred Tax Asset-non current
Total Assets
Deferred Tax Liability
Income Taxes Payable
Total Liabilities
Retained Earnings (deficit)
Total Stockholder's Equity
For the Year Ended December 31, 2007
Deferred Tax Asset-non current
Total Assets
Deferred Tax Liability
Income Taxes Payable
Total Liabilities
Retained Earnings (deficit)
Total Stockholder's Equity
Total Liabilities and Shareholder's
Equity
For the Year Ended December 31, 2006
Deferred Tax Asset-non current
Total Assets
Deferred Tax Liability
Income Taxes Payable
Total Liabilities
Retained Earnings (deficit)
Total Stockholder's Equity
Total Liabilities and Shareholder's
Equity
Consolidated Balance Sheets
As Previously
Reported
Adjustments
As Restated
1,131,000
51,037,000
-
-
12,864,000
15,253,000
38,173,000
(981,000)
(981,000)
1,869,000
101,000
1,971,000
(2,952,000)
(2,952,000)
150,000
50,056,000
1,869,000
101,000
14,835,000
12,301,000
35,221,000
As Previously
Reported
Adjustments
As Restated
897,000
43,724,000
-
592,000
11,304,000
9,818,000
32,420,000
43,724,000
(637,000)
(637,000)
1,506,000
211,000
1,716,000
(2,352,000)
(2,353,000)
(637,000)
260,000
43,087,000
1,506,000
803,000
13,020,000
7,466,000
30,067,000
43,087,000
As Previously
Reported
Adjustments
As Restated
517,000
36,677,000
-
535,000
8,761,000
5,981,000
27,916,000
36,677,000
(302,000)
(302,000)
2,270,000
(631,000)
1,639,000
(1,941,000)
(1,941,000)
(302,000)
215,000
36,375,000
2,270,000
(96,000)
10,400,000
4,040,000
25,975,000
36,375,000
136
Consolidated Statements of Operations
For the Year Ended December 31, 2008
Provision for income taxes
Net income
Basic Earnings Per Share
Dilute Earnings Per Share
For the Year Ended December 31, 2007
Provision for income taxes
Net income
Basic Earnings Per Share
Dilute Earnings Per Share
For the Year Ended December 31, 2006
Provision for income taxes
Net income
Basic Earnings Per Share
Dilute Earnings Per Share
As Previously
Reported
Adjustments
As Restated
2,415,000
601,000
5,435,000
(601,000)
3,016,000
4,834,000
0.41
0.38
As Previously
Reported
(0.04)
(0.03)
0.37
0.34
Adjustments
As Restated
1,706,000
411,000
3,837,000
(411,000)
2,117,000
3,426,000
0.30
0.28
As Previously
Reported
(0.04)
(0.03)
0.26
0.25
Adjustments
As Restated
2,307,000
583,000
5,156,000
(583,000)
2,890,000
4,573,000
0.41
0.38
(0.05)
(0.04)
0.36
0.34
Consolidated Statement of Cash Flows
For the Year Ended December 31, 2008
As Previously
Reported
Adjustments
As Restated
Net income
Deferred Tax Asset
Deferred Tax Liability
Income Taxes Payable
5,435,000
(234,000)
-
(592,000)
(601,000)
(981,000)
1,869,000
101,000
4,834,000
747,000
1,869,000
(491,000)
For the Year Ended December 31, 2007
As Previously
Reported
Adjustments
As Restated
Net income
Deferred Tax Asset
Deferred Tax Liability
Income Taxes Payable
3,837,000
(390,000)
-
57,000
(411,000)
(637,000)
1,506,000
211,000
3,426,000
247,000
1,506,000
268,000
For the Year Ended December 31, 2006
As Previously
Reported
Adjustments
As Restated
Net income
Deferred Tax Asset
Deferred Tax Liability
Income Taxes Payable
5,156,000
(597,000)
-
(364,000)
(583,000)
(302,000)
2,270,000
(631,000)
4,573,000
(295,000)
2,270,000
(995,000)
137
18. QUARTERLY RESULTS (Unaudited)
2009
Revenue
Gross Profit
Operating Income
Net Income
Earnings per common
share - diluted
2008 (Restated)
Revenue
Gross Profit
Operating Income
Net Income
Earnings per common
share - diluted
2007 (Restated)
Revenue
Gross Profit
Operating Income
Net Income
Earnings per common
share - diluted
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$33,693,000
$40,699,000
$45,006,000
$46,220,000
25,639,000
30,948,000
34,235,000
34,503,000
4,028,000
2,498,000
4,774,000
2,985,000
5,563,000
3,434,000
5,000,000
3,045,000
0.17
0.20
0.23
0.21
$25,169,000
$27,537,000
$27,281,000
$25,458,000
19,069,000
20,860,000
20,759,000
19,425,000
2,062,000
1,252,000
2,409,000
1,431,000
2,396,000
1,448,000
1,332,000
703,000
0.09
0.10
0.10
0.05
$20,089,000
$22,041,000
$21,846,000
$19,803,000
15,031,000
16,678,000
16,323,000
14,283,000
1,914,000
1,176,000
1,445,000
1,557,000
877,000
865,000
799,000
508,000
0.09
0.06
0.06
0.04
(1) -Earnings per common share is computed independently for each of the quarters presented;
accordingly, in the sum of the quarterly earnings per common share may not equal the total computed
for the year.
138
INDEX TO EXHIBITS
No.
3.1 Certificate of Incorporation of the Company and amendments thereto
3.2 By-Laws of the Company- Amended
10.1 1993 Stock Option Plan of the Company as amended*
10.3 Lease relating to the Company’s Owings Mills, Maryland facility**
10.4 Employment agreement with Bradley T. MacDonald***
10.5 Employment agreement with Bradley T. MacDonald signed February 8, 2006
10.6 Employment agreement with Michael S. McDevitt signed February 8, 2006
10.7 Employment agreement with Margaret MacDonald signed February 8, 2006
10.8 Employment agreement with Brendan N. Connors signed February 8, 2006
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
________
* Filed as an exhibit to and incorporated by reference to the Registration
Statement on Form SB-2 of the Company, File No. 33-71284-NY.
** Filed as an exhibit to and incorporated by reference to the Registration
Statement on Form S-4 of the Company, File No. 33-81524.
***Filed as an exhibit to 10KSB, dated April 15, 1999 of the Company, file No. 000-23016.
139
(b) Reports on Form 8-K
March 1, 2007, to announce Michael S. McDevitt promoted to CEO, Margaret MacDonald promoted to President
and COO, and Bradley T. MacDonald named Executive Chairman of the Board.
March 7, 2007, to announce full-year 2007 revenue and diluted earnings per share guidance
June 12, 2007, to announce the election of a new Board member
September 24, 2007, to announce the results of the Annual Meeting of Shareholders on September 7, 2007
October 4, 2007, to announce updated full-year 2007 revenue and diluted earnings per share guidance
December 26, 2007, to announce receipt of notice from New York Stock Exchange concerning listing criteria
March 12, 2008, to announce financial results for the quarter and year ended December 31, 2007
May 9, 2008, to announce the election of a new Board member
June 25, 2008, to announce the election of a new Board member
December 17, 2008, to announce updated 2008 revenue guidance
February 19, 2009, Company response to false claims
March 5, 2009, to announce the election of two new Board members
March 12, 2009, to announce 2008 revenue and earnings and provided 2009 sales trending YTD
March 30, 2009, to announce the authorization of a stock repurchase
May 13, 2009, to announce removal from New York Stock Exchange “watch list”
June 26, 2009, to announce independence review of certifying accountants
July 6, 2009, to announce creation of direct financial obligation
July 22, 2009, to announce departure of Board member
October 13, 2009, to announce election of new Board member
January 22, 2010, to announce reaffirmation with The Direct Selling Association
140
January 25, 2010, to announce financial results for the quarter and year ended December 31, 2009
January 26, 2010, to announce changes in Certifying Accountant
March 4, 2010, to announce to announce financial results for the quarter and year ended December 31, 2009
141
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
BRADLEY T. MACDONALD
- ---------------------------------------
Bradley T. MacDonald
Executive Chairman of the Board
Dated: March 30, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the
Registrant and in the capacities and on the dates indicated have signed this Report below.
Name
Title
Date
Director
March 30, 2010
Director
March 30, 2010
Director
March 30, 2010
Director
March 30, 2010
/s/ BARRY B. BONDROFF, CPA
------------------------------------------
Barry B. Bondroff, CPA
/s/ CHARLES P. CONNOLLY
------------------------------------------
Charles P. Connolly
/s/ JASON L. GROVES
------------------------------------------
Jason L. Groves
/s/ GEORGE J. LAVIN, ESQ.
------------------------------------------
George J. Lavin, Esq.
142
Name
Title
Date
/s/ BRADLEY T. MACDONALD
-------------------------------------------
Bradley T. MacDonald
/s/ MICHAEL C. MACDONALD
------------------------------------------
Michael C. MacDonald
/s/ SR. CATHY T. MAGUIRE RSM
------------------------------------------
Sr. Cathy T. Maguire, RSM
/s/ JOHN P. MCDANIEL
------------------------------------------
John P. McDaniel
/s/ MICHAEL S. MCDEVITT
------------------------------------------
Michael S. McDevitt
/s/ JERRY D. REECE
------------------------------------------
Jerry D. Reece
/s/ JEANNETTE M. MILLS
------------------------------------------
Jeannette M. Mills
/s/ REV. DONALD F. REILLY, OSA
------------------------------------------
Rev. Donald F. Reilly, OSA
/s/ MARGARET SHEETZ
------------------------------------------
Margaret Sheetz
Chairman of the Board, March 30, 2010
Director
Director
March 30, 2010
Director
March 30, 2010
Director
March 30, 2010
Director
March 30, 2010
Director
March 30, 2010
Director
March 30, 2010
Director
March 30, 2010
Director
March 30, 2010
143
Exhibit 31.1
RULE 13a-14(a) CERTIFICATION
I, Michael S. McDevitt, certify that:
1.
I have reviewed this report on Form 10-K of Medifast, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
2.
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 this report;
Based on my knowledge, the financial statements, and other financial information included in this
3.
report, 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 report;
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Ex-
change Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, 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 in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliabil-
ity of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and present-
ed in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the
5.
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
144
(a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 30, 2010
/s/ Michael S. McDevitt
Michael S. McDevitt
Chief Executive Officer, Chief Financial Officer
Exhibit 31.2
RULE 13a-14(a) CERTIFICATION
I, Michael S. McDevitt, certify that:
1.
I have reviewed this report on Form 10-K of Medifast, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
2.
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 this report;
Based on my knowledge, the financial statements, and other financial information included in this
3.
report, 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 report;
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Ex-
change Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, 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 in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over
145
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliabil-
ity of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and present-
ed in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the
5.
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 30, 2010
/s/ Michael S. McDevitt
Michael S. McDevitt
Chief Executive Officer, Chief Financial Officer
146
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Medifast, Inc. (the “Company”) on Form 10-K for the year ended Decem-
ber 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Michael
S. McDevitt, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowl-
edge, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
(1)
Act of 1934, as amended; and
The information contained in the report fairly presents, in all material respects, the financial condition
(2)
and results of the operations of the Company.
By: /s/ Michael S. McDevitt
Michael S. McDevitt
Chief Executive Officer, Chief Financial Officer
March 30, 2010
147
148
M ed ifas t, I nc.
11445 Cron hill D rive
Owi ngs M il ls , Mary land 21117
Medifa st I nc . 2 009 Annual Repor t
CO-BOK0610_AnnReport