Press Releases

Medifast, Inc. announced today record revenues and a 43.4% increase in pre-tax net income for its second quarter ended June 30, 2003. The company generated revenues of $6,417,000, a 112% increase versus the same period a year earlier when it reported revenues of $3,028,000. Medifast reported income from operations of $971,000, or $0.09 per fully diluted share, a 43% increase versus $677,000, or $0.08 per fully diluted share for the second quarter of 2002. Medifast generated net income of $591,000, or $0.05 per share on a fully diluted basis, versus $674,000, or $0.08 per fully diluted share in the year-ago period. Net income attributable to common shareholders was $580,000, despite the fact that the Company is now accruing federal income taxes at a 38.3% effective rate, equal to $0.04 a share fully diluted, whereas last year the Company did not pay taxes as a result of its net loss carryforwards. Net income included the addition of approximately 2.7 million shares from the year earlier period, as a result of preferred stock conversions and acquisitions. The Company made substantial investments in advertising during the second quarter, and expects it to continue to drive revenues according to forecast.

For the six months ended June 30, 2002, Medifast reported revenues of $12,764,000, a 166% increase from $4,800,000 during the year earlier period. The company had income from operations of $2,415,000, or $0.23 per diluted share, a 147% increase from $979,000, or $0.12 per diluted share during the same six months in 2002. The company had net income of $1,455,000, or $0.14 per diluted share, a 55% increase versus $936,000, or $0.11 per diluted share in the 2002 period. Net income attributable to common stockholders was $1,425,000, versus $891,000 in the six months of the prior year.

The company strengthened its balance sheet during the second quarter. Its cash position increased from $424,000 at the end of June 30, 2002 to $2,002,000 at the end of the 2003 second quarter. Stockholder equity increased from $3.6 million at year-end to $8.2 million at the end of the second quarter. During the quarter, the company converted a significant amount of the Series B and Series C Preferred Stock into common stock and restructured its long-term debt on more favorable terms. Subsequent to the end of the second quarter, the company raised $6.82 million in a private placement.

During the second quarter, the company’s principal website was disrupted by an unidentified professional hacker. The company estimated that the lost revenues and damage to its infrastructure exceeded $200,000. The company has implemented additional security measures to reduce the probability of such an event in the future. In addition, the company’s financial results were adversely impacted by delays in shipments of certain of its nutrition bars, as a result of increased security in Canadian customs. Medifast estimates these instances reduced profitability in excess of $50,000.

“We continue to deliver strong financial results while we invest heavily in the future of the company,” said Bradley T. MacDonald, Medifast’s President and Chief Executive Officer. “Our second quarter results were impacted by investments we made in the acquisition of Consumer Choice Systems (CCS), new advertising initiatives and start-up expenses related to the launch of our Fit! Line. CCS is expected to show significant second half growth as a result of the Amazon.com deal and increased penetration in food and drug stores across the U.S. Our strong advertising spending in the second quarter should result in increased third quarter revenues. We expect our Fit! Line and our export programs to play an important role in second-half growth.”

  Some of the highlights of the second-quarter include:

  --   Increased awareness from advertising spending.  The company
       delivered over 600 million consumer impressions through national
       print media such as AARP's The Magazine and Parade Magazine, which
       continue to drive strong revenue growth.

  --   Launch of new product line.  The company launched its new Fit! Line,
       a revolutionary line of soy-based products specially formulated to
       improve adolescent health.  The line is expected to increase the
       company's national network of pediatricians and school nurses
       through aggressive marketing.

  --   Acquisition of Consumer Choice Systems.  The company, through its
       wholly owned subsidiary Jason Enterprises, acquired the assets of
       Consumer Choice Systems, a distributor of women's health products,
       including products for menopausal women.  Medifast believes this
       will enable the company to penetrate a rapidly growing new market.

  --   Strong operating margins.  The company maintained its operating
       margin of 19%, among the best in the industry.

  --   Improved balance sheet.  The company significantly increased
       Stockholders' Equity, repaid its short-term debt, restructured its
       long-term debt and reduced the amount of Series B and Series C
       Preferred Notes.

  --   Growth in the Take Shape for Life Network.  The company continues to
       sign new members for the program, which had approximately
       4,000 members at the end of the quarter, an increase of 100% since
       the beginning of the year.

  Preparation for launch of a Television Campaign

The company announced today details of its plan to expand its highly successful print advertising campaign to cable television. It has begun to purchase network time and negotiate production deals for a series of infomercials designed to air at the beginning of the year on cable television stations in key markets. These infomercials are expected to increase the company’s 2004 annualized revenues to $36 million. The company believes that it will be able to maintain its operating margins, as it already has the necessary infrastructure in place, including an expanded warehouse facility and fully staffed call center. The company recently completed a private placement for this purpose.

Outlook

The company expects to generate third quarter revenues of $6.4 to $6.6 million for its third quarter ended September 30. The company expects to report income from operations of $925,000 to $1,250,000, or $.08 to $.09 per diluted share. For the full year, Medifast now expects revenues of $24 million to $26.5 million, versus its previous estimates of $23.5 to $26 million. It expects income from operations of approximately $4.3 million to $5 million, or approximately $0.39 to $0.45 per diluted share, versus its previous estimate of $0.37 to $0.45 per share. This updated guidance includes the dilution from the recent capital raising activities, acquisitions and share conversions. The Company does not expect to be a Federal taxpayer until 2004, but expects to pay taxes at an effective rate of 38.3% for GAAP calculations.

Company executives will hold a conference call today at 4:30 p.m. to discuss its quarterly results. Interested participants should call (800) 861-5314 and reference participant access code 27127. The conference call will also be webcast at: http://w.on24.com/r.htm?e=2831&s=1&k=FAE9148FA956BB901790F197575F72EF. A replay of the event will be available for up to one week after it is completed by calling (800) 695-0507. It will also be available on the Internet for a one-week period.

Medifast is a leader in innovative, great-tasting, soy-based medical meal replacement products used by qualified medical practitioners and their patients for over twenty years. The Company recently expanded its health and wellness spectrum to include disease management products and healthcare accessories. In mid-October, Medifast launched Medifast Plus for Women’s Health and Medifast Plus for Joint Health in addition to Medifast Plus for Diabetics. The Company continues to market and sell Medifast Weight Management products throughout the United States and recently, in the Asian Market. The launch of the new Medifast Plus products in addition to an aggressive advertising campaign has helped facilitate the increase in sales and margins.

Forward-looking statements made in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risk and uncertainties which may cause actual results to differ from anticipated results, including risks associated with the timing and development of the company’s reserves and projects as well as risks of downturns in economic conditions generally, and other risks detailed from time to time in the company’s filings with the Securities and Exchange Commission.

CONTACT: Casey Seward, Public & Investor Relations Specialist of Medifast, Inc., +1-410-504-8154; or Ken Sgro, CEOcast, Inc. for Medifast, +1-212-732-4300

                              Medifast, Inc.
                  Condensed Consolidated Balance Sheets

                                            June 30, 2003     Dec. 31, 2002
                                             (Unaudited)
  ASSETS
  Current assets:
    Cash                                        $2,002,000       $837,000
    Certificates of Deposit                        421,000        418,000
    Accounts receivable, net of allowance          628,000        284,000
    Merchandise inventory                        1,725,000      1,259,000
    Prepaid expenses and other current assets      581,000        249,000
    Deferred tax asset                             829,000      1,079,000
      Total Current Assets                       6,186,000      4,126,000
  Property, plant and equipment - net            4,834,000      4,498,000
  Goodwill                                       1,763,000              0
  Trademarks and intangibles                     1,251,000        608,000
  Other assets                                      40,000          1,000
  Deferred tax asset                                     0        655,000
      TOTAL ASSETS                             $14,074,000     $9,888,000

  LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
    Current maturities of long-term obligations   $333,000       $304,000
    Lines of Credit                                260,000         91,000
    Dividends Payable                               43,000         25,000
    Accounts payable and accrued expenses        2,554,000      1,189,000
    Total Current Liabilities                    3,190,000      1,609,000
    Long-term obligations
     less current maturities                     2,712,000      2,701,000
      Total Liabilities                          5,902,000      4,310,000
  Commitments and contingencies:
  Stockholders' Equity:
  Series B Redeemable Convertible Preferred
   Stock; stated value $1.00; 600,000 shares
   authorized; 453,734 and 521,290 shares
   issued and outstanding, respectively            454,000        521,000
  Series C Convertible Preferred Stock;
   stated value $1.00; 1,015,000 shares
   authorized; 367,000 and 985,000 shares
   issued and outstanding, respectively            367,000        985,000
  Common stock; par value $.001 per share;
   15,000,000 authorized; 9,315,662 and
   7,204,693 shares issued and outstanding,
   respectively                                      9,000          7,000
  Accumulated deficit                           (3,955,000)    (5,381,000)
                                                 8,561,000      5,745,000
  Less: Cost of Common Stock in treasury;
   63,393 and 30,178 shares, respectively         (389,000)      (167,000)
  Total Stockholders' Equity                     8,172,000      5,578,000
    TOTAL LIABILITIES & STOCKHOLDER EQUITY     $14,074,000     $9,888,000


                              Medifast, Inc.
              Condensed Consolidated Statement of Operations

                    Three Months Ended June 30,   Six Months Ended June 30,
                          2003          2002         2003          2002
                             (Unaudited)                (Unaudited)

  Revenue             $6,417,000    $3,028,000  $12,764,000    $4,800,000
  Cost of sales        1,628,000       973,000    3,311,000     1,632,000
  Gross Profit         4,789,000     2,055,000    9,453,000     3,168,000
  Selling, general,
   and administration  3,818,000     1,378,000    7,038,000     2,189,000

  Income from
   operations            971,000       677,000    2,415,000       979,000
  Other income/(expenses)
    Interest expense     (31,000)      (13,000)     (64,000)      (54,000)
    Other income/
     (expense)            19,000      (138,000)       9,000      (137,000)

  Income before provision
   for income taxes      959,000       526,000    2,360,000       788,000
    Provision for
     income tax
     benefit/(expense)  (368,000)      148,000     (905,000)      148,000

  Net income             591,000       674,000    1,455,000       936,000
  Less: Stock dividend
   on preferred stock    (11,000)      (21,000)     (30,000)      (45,000)
  Net income
   attributable to
   common shareholders  $580,000      $653,000   $1,425,000      $891,000
  Basic earnings
   per share                $.06          $.10         $.17          $.14
  Diluted earnings
   per share                $.05          $.08         $.14          $.11
    Weighted average
     shares outstanding -
    Basic              9,207,119     6,619,121    8,486,681     6,591,977
    Diluted           11,112,458     8,390,970   10,676,714     8,401,717

This release contains forward-looking statements, which may involve known, and unknown risks, uncertainties and other factors that may cause Medifast’s actual results and performance in future periods to be materially different from any future results or performance suggested by these statements. Medifast cautions investors not to place undue reliance on forward-looking statements, which speak only to management’s expectation on this date.

SOURCE: Medifast, Inc.