UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

|X|   QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(D)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2006

                                       OR

|_|   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(D)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission file number 0-23016

                                 MEDIFAST, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


          DELAWARE                                     13-3714405
(STATE OR OTHER JURISDICTION                         (I.R.S. EMPLOYER
       OF ORGANIZATION)                              IDENTIFICATION NO.)
   11445 CRONHILL DRIVE
   OWINGS MILLS, MD 21117
TELEPHONE NUMBER (410) 581-8042

Indicate by checkmark  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 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 Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer |_|   Accelerated filer |_|   Non-accelerated filer |X|

Indicate by checkmark  whether the  Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 Yes |_| No |X|

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.


                                                     OUTSTANDING AT
              CLASS                                   MAY 3, 2006
---------------------------------------              --------------
Common stock, $.001 par value per share              13,363,624 shares


<PAGE>

                                      INDEX

PART I
FINANCIAL INFORMATION:

    Condensed Consolidated Balance Sheets -
        March 31, 2006 (unaudited) and December 31, 2005 (audited)...........  3

    Condensed Consolidated Statements of Income -
        Three Months Ended March 31, 2006 and 2005 (unaudited)...............  4

    Condensed Consolidated Statements of Cash Flows -
        Three Months Ended March 31, 2006 and 2005 (unaudited)...............  5

    Notes to Condensed Consolidated Financial Statements.....................  7

    Management Discussion and Analysis of Financial Condition
        and Results of Operations............................................ 13


PART II


    Exhibits................................................................. 17
        EX 31.1
        EX 31.2
        EX 32.1..


                                       2
<PAGE>


                                     MEDIFAST, INC. AND SUBSIDIARIES
                                  CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                              March 31,     December 31,
                                                                                2006            2005
                                                                            ------------    ------------
                                                                             (Unaudited)      (Audited)
<S>                                                                         <C>             <C>
 ASSETS
   CURRENT ASSETS:
   Cash                                                                     $  3,793,000    $  1,484,000
   Accounts receivable-net of allowance for doubtful accounts of $100,000        775,000         985,000
   Inventory                                                                   5,072,000       5,475,000
   Investment securities                                                       2,764,000       2,700,000
   Deferred compensation                                                         627,000         525,000
   Prepaid expenses and other current assets                                   2,438,000       3,273,000
   Note receivable - current                                                     183,000              --
   Deferred tax asset                                                             90,000              --
                                                                            ------------    ------------
        TOTAL CURRENT ASSETS                                                  14,442,000
                                                                                              15,742,000

Property, plant and equipment - net                                           10,076,000       9,535,000
Trademarks and intangibles - net                                               4,785,000       6,508,000
Deferred tax asset, net of current portion                                       172,000              --
Note receivable, net of current portion                                        1,320,000              --
Other assets                                                                      61,000          60,000
                                                                            ------------    ------------
        TOTAL ASSETS                                                        $ 32,156,000    $ 30,545,000
                                                                            ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable and accrued expenses                                    $  2,918,000    $  2,263,000
   Income taxes payable                                                          483,000         899,000
   Line of credit                                                                624,000         633,000
   Current maturities of long-term debt                                          542,000         561,000
   Deferred tax liability - current                                                   --          90,000
                                                                            ------------    ------------
        TOTAL CURRENT LIABILITIES                                              4,567,000       4,446,000

   Long-term debt, net of current portion                                      3,851,000       3,977,000
   Deferred tax liability - non-current                                               --         101,000
                                                                            ------------    ------------
        TOTAL LIABILITIES                                                      8,418,000       8,524,000
                                                                            ------------    ------------

STOCKHOLDERS' EQUITY:

Common stock; par value $.001 per share; 20,000,000 authorized;
   13,363,624 and 12,782,791 shares issued and outstanding, respectively          13,000          13,000
Additional paid-in capital                                                    25,579,000      21,759,000
Accumulated other comprehensive income                                           227,000         282,000
Retained Earnings                                                              2,843,000       1,149,000
                                                                            ------------    ------------
                                                                              28,662,000      23,203,000
Less: cost of 210,902 shares of common stock in treasury                      (1,075,000)     (1,075,000)
Less: unearned compensation                                                   (3,849,000)       (107,000)
                                                                            ------------    ------------
TOTAL STOCKHOLDERS' EQUITY                                                    23,738,000      22,021,000
                                                                            ------------    ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                                    $ 32,156,000    $ 30,545,000
                                                                            ============    ============


                 See accompanying notes to condensed consolidated financial statements.
</TABLE>


                                                   3
<PAGE>

                         MEDIFAST, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME


                                                    THREE MONTHS ENDED
                                                          MARCH 31,
                                               ----------------------------
                                                    2006            2005
                                               ------------    ------------
                                                (Unaudited)     (Unaudited)

Revenue                                        $ 19,183,000    $  8,326,000
Cost of sales                                     4,778,000       2,073,000
                                               ------------    ------------
GROSS PROFIT                                     14,405,000       6,253,000
Selling, general, and administration             11,351,000       5,341,000
                                               ------------    ------------
INCOME FROM OPERATIONS                            3,054,000         912,000

Other income/(expense)
     Interest expense                               (89,000)        (65,000)
     Loss on sale of Consumer Choice Systems       (323,000)
     Interest income                                 98,000          28,000
     Other income (expense)                          79,000         (21,000)
                                               ------------    ------------
INCOME BEFORE PROVISION FOR INCOME TAXES          2,819,000         854,000
Provision for income tax (expense)               (1,125,000)       (347,000)
                                               ------------    ------------

NET INCOME                                        1,694,000         507,000

Less:  Preferred stock dividend requirement              --              --
                                               ------------    ------------
NET INCOME                                     $  1,694,000    $    507,000
                                               ============    ============


Basic earnings per share                       $       0.13    $       0.04
Diluted earnings per share                     $       0.13    $       0.04

Weighted average shares outstanding -
     Basic                                       12,965,518      11,916,241
     Diluted                                     13,474,411      12,729,459

     See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>

                                  MEDIFAST, INC. AND SUBSIDIARIES
                          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                             THREE MONTHS ENDED
                                                                                  MARCH 31,
                                                                         --------------------------
                                                                            2006           2005
                                                                         -----------    -----------
                                                                         (Unaudited)     (Unaudited)
<S>                                                                      <C>            <C>
Cash flows from operating activities:
   Net income                                                            $ 1,694,000    $   507,000
   Adjustments to reconcile net income to net cash
        provided by operating activities from
        continuing operations:
        Depreciation and amortization                                        759,000        470,000
        Realized (gain) loss on investment securities                        (19,000)        22,000
        Loss on sale of Consumer Choice Systems                              323,000
        Common stock issued for services                                      33,000        103,000
        Stock options vested during period                                    18,000             --
        Excess tax benefits from share-based payment arrangements             (6,000)            --
        Vesting of unearned compensation                                      15,000             --
        Net change in other comprehensive (loss) income                      (55,000)       (57,000)
        Deferred income taxes                                                (35,000)
                                                                                           (262,000)
        Provision for bad debts                                                   --         13,000

Changes in assets and liabilities:
        (Increase) decrease in accounts receivable                            79,000       (109,000)
        (Increase) decrease in inventory                                      46,000       (211,000)
        (Increase) decrease in prepaid expenses & other current assets       835,000       (214,000)
        (Increase) in deferred compensation                                 (102,000)            --
        (Increase) in other assets                                            (1,000)            --
         Increase in accounts payable and accrued expenses                   652,000        197,000
        (Decrease) in deferred tax liability                                (191,000)            --
        (Decrease) in income taxes payable                                  (416,000)      (317,000)
                                                                         -----------    -----------
      Net cash provided by operating activities                            3,402,000        369,000
                                                                         -----------    -----------
Cash Flow from Investing Activities:
   Sale (Purchase) of investment securities, net                             (44,000)       (32,000)
  (Purchase) of property and equipment                                      (763,000)      (486,000)
   (Purchase) of intangible assets                                          (150,000)       (66,000)
                                                                         -----------    -----------
      Net cash provided by (used in) investing activities                   (957,000)      (584,000)
                                                                         -----------    -----------
Cash Flow from Financing Activities:
   Issuance of common stock, options and warrants                             13,000          1,000
   Increase in credit line, net                                                   --        660,000
   Principal repayments of long-term debt                                   (155,000)      (131,000)
   Excess tax benefits from share-based payment arrangements                   6,000             --
   Dividends paid on preferred stock                                              --        (11,000)
                                                                         -----------    -----------
      Net cash provided by (used in) financing activities                   (136,000)       519,000
                                                                         -----------    -----------
NET INCREASE IN CASH AND
    CASH EQUIVALENTS                                                       2,309,000        304,000

Cash and cash equivalents - beginning of the period                        1,484,000        612,000
                                                                         -----------    -----------
Cash and cash equivalents - end of period                                $ 3,793,000    $   916,000
                                                                         ===========    ===========
Supplemental disclosure of cash flow information:
   Interest paid                                                         $    89,000    $    65,000
                                                                         ===========    ===========
   Income taxes                                                          $ 1,231,000    $    25,000
                                                                         ===========    ===========
Supplemental disclosure of non cash activity:
  Common stock issued to executives over 6-year vesting period           $ 3,373,000    $        --
                                                                         ===========    ===========
  Common shares issued for options and warrants                          $   384,000    $        --
                                                                         ===========    ===========
  Options vested during period                                           $    18,000    $        --
                                                                         ===========    ===========
  Conversion of preferred stock B and C to common stock                  $        --    $   300,000
                                                                         ===========    ===========
  Common stock issued for services                                       $    33,000    $   103,000
                                                                         ===========    ===========
Preferred B and C stock dividends converted to common stock              $        --    $   269,000
                                                                         ===========    ===========
Line of credit converted to long-term debt                               $        --    $   369,000
                                                                         ===========    ===========


               See accompanying notes to condensed consolidated financial statements.
</TABLE>


                                                 5
<PAGE>

                                  MEDIFAST, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)

<TABLE>
<CAPTION>

                                                                             THREE MONTHS ENDED
                                                                                  MARCH 31,
                                                                         --------------------------
                                                                            2006           2005
                                                                         -----------    -----------
                                                                         (Unaudited)     (Unaudited)
<S>                                                                      <C>            <C>

    Supplemental disclosure of non cash activity:
      Sale of Consumer Choice Systems
    -----------------------------------------------------
          Inventory                                                      $   358,000    $        --
          Accounts Receivable                                                131,000             --
          Intangible assets, net                                           1,337,000             --
          Note receivable                                                 (1,503,000)            --
          Loss on sale of Consumer Choice Systems                           (323,000)            --
                                                                         -----------    -----------
                                                                         $        --
                                                                         ===========    ===========


               See accompanying notes to condensed consolidated financial statements.
</TABLE>


                                                 6
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GENERAL

1.    Basis of Presentation

The condensed  unaudited  interim  consolidated  financial  statements  included
herein have been prepared,  without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission.  The condensed consolidated financial
statements  and notes are presented as permitted on Form 10-Q and do not contain
information  included in the  Company's  annual  statements  and notes.  Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America have been  condensed or omitted  pursuant to such rules
and regulations, although the Company believes that the disclosures are adequate
to make the  information  presented not  misleading.  It is suggested that these
condensed  consolidated  financial  statements be read in  conjunction  with the
December 31, 2005 audited consolidated financial statements and the accompanying
notes thereto.  While management  believes the procedures  followed in preparing
these condensed consolidated  financial statements are reasonable,  the accuracy
of the amounts are in some  respects  dependent  upon the facts that will exist,
and procedures that will be accomplished by the Company later in the year.

These  condensed  unaudited   consolidated   financial  statements  reflect  all
adjustments,  including normal recurring  adjustments,  which, in the opinion of
management,  are necessary to present  fairly the  operations and cash flows for
the period presented.

2.    Presentation of Financial Statements

The Company's condensed  consolidated  financial statements include the accounts
of  Medifast,   Inc.  and  its   wholly-owned   subsidiaries.   All  significant
intercompany accounts and transactions have been eliminated.

3.    Inventories

Inventories  consist  principally of finished packaged foods,  packaging and raw
materials held in either the Company's  manufacturing  facility and distribution
warehouse.  Inventories  are valued  with cost  determined  using the  first-in,
first-out (FIFO) method.

4.    GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No.  142  "Goodwill  and Other  Intangible  Assets".  This  statement  addresses
financial  accounting and reporting for acquired  goodwill and other  intangible
assets and 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.  On January 17, 2006, the
Company sold its goodwill  balance of $893,500 when the Consumer  Choice Systems
division was sold.

The Company has intangible assets,  which include:  customer lists,  non-compete
agreements,  trademarks  and  patents.  The  non-compete  agreements  are  being
amortized  over the legal life of the agreements  ranging  between 3 to 7 years.
The customer lists are being  amortized  over a period  ranging  between 5 to 10
years  based on  management's  best  estimate  of the  expected  benefits  to be
consumed or otherwise used up. Trademarks and patents are regularly  reviewed to
determine whether the facts and circumstances  exist to indicate that the useful
life is shorter than  originally  estimated or the carrying amount of the assets
may  not  be  recoverable.  The  Company  assesses  the  recoverability  of  its


                                       7
<PAGE>

trademarks  and patents by comparing  the  projected  discounted  net cash flows
associated with the related asset,  over their remaining lives, in comparison to
their respective carrying amounts. Impairment, if any, is based on the excess of
the carrying amount over the fair value of those assets.

<TABLE>
<CAPTION>

                                               AS OF MARCH 31, 2006                           AS OF DECEMBER 31, 2005
                                   ---------------------------------------------    --------------------------------------------
                                      GROSS CARRYING            ACCUMULATED            GROSS CARRYING           ACCUMULATED
                                          AMOUNT                AMORTIZATION               AMOUNT               AMORTIZATION
                                   ----------------------    -------------------    ----------------------   -------------------
<S>                                <C>                       <C>                    <C>                      <C>
Customer lists                              $  4,295,000            $ 1,090,000              $  4,514,000            $  873,000
Non-compete agreements                           840,000                663,000                   840,000               566,000
Trademarks and patents                         1,482,000                 78,000                 1,821,000               121,000
Goodwill                                              --                     --                   894,000                    --
                                   ----------------------    -------------------    ----------------------   -------------------
    Total                                   $  6,617,000            $ 1,831,000              $  8,069,000           $ 1,560,000
                                   ======================    ===================    ======================   ===================
</TABLE>

AMORTIZATION  EXPENSE FOR THE THREE  MONTHS ENDED MARCH 31, 2006 AND 2005 WAS AS
FOLLOWS:

                                           2006                   2005
                                  ----------------------   -------------------
Customer lists                               $  419,000               161,000
Non-compete agreements                           97,000                72,000
Trademarks and patents                           20,000                    --
                                  ----------------------   -------------------
Total Trademarks and Intangibles             $  536,000            $  233,000
                                  ======================   ===================

On January 17, 2006 the  Consumers  Choice  Systems  division of the Company was
sold  which  included  the sale of  $1,601,000  in gross  intangible  assets and
$265,000 in accumulated amortization.

Amortization  expense  is  included  in  selling,   general  and  administrative
expenses.


5.    Fixed Assets

Fixed  assets  are  stated  at  cost.   Depreciation   is  provided   using  the
straight-line  method over the  estimated  useful  lives of the related  assets,
which are generally three to seven years.  Leasehold  improvements and equipment
under capital leases are amortized on a  straight-line  basis over the lesser of
the estimated useful life of the asset or the related lease terms.  Expenditures
for repairs and  maintenance  are  charged to expense as  incurred,  while major
renewals and improvements are capitalized.


                                       8
<PAGE>

6.    Note Receivable

Medifast  realized  a  $1,503,000  note  receivable  as a result  of the sale of
Consumer  Choice Systems on January 17, 2006 to a former board member.  The note
has a 10-year term with imputted  interest of 4% collateralized by 50,000 shares
of Medifast stock and all the assets of the Company.  The amount of principal to
be  collected  over  each of the next 5 years  is  $183,000  per  year  with the
remaining amount collectible thereafter of $588,000.

7.    Income Per Common Share

Basic  income per share is  calculated  by dividing  net income by the  weighted
average  number of outstanding  common shares during the year.  Basic income per
share excludes any dilutive effects of options,  warrants and other  stock-based
compensation.

8.    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.

9.    Share Based Payments

Stock-Based Compensation

Effective  December 31, 2005,  the Company  adopted the  provisions of Financial
Accounting  Standards Board Statement of Financial  Accounting Standard ("SFAS")
No.  123(R),  "Share-Based  Payments,"  which  establishes  the  accounting  for
employee stock-based awards. Under the provisions of SFAS No.123(R), 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 adopted
SFAS No. 123(R) using the modified prospective method and, as a result,  periods
prior to  December  31,  2005 have not been  restated.  The  Company  recognized
stock-based  compensation  for awards  issued under the  Company's  stock option
plans in the  Selling,  General and  Administrative  line item of the  Condensed
Consolidated Statement of Operations.  Additionally,  no modifications were made
to outstanding  stock options prior to the adoption of SFAS No.  123(R),  and no
cumulative adjustments were recorded in the Company's financial statements.

Prior to December 31, 2005, the Company  accounted for stock-based  compensation
in accordance  with  provisions of  Accounting  Principles  Board Opinion No. 25
("APB  No.  25"),  "Accounting  for  Stock  Issued to  Employees,"  and  related
interpretations. Under APB No. 25, compensation cost was recognized based on the
difference, if any, on the date of grant between the fair value of the Company's
stock and the amount an  employee  must pay to acquire  the stock.  The  Company
grants stock  options at an exercise  price equal to 100% of the market price on
the date of grant.  Accordingly,  no compensation expense was recognized for the
stock option grants in periods prior to the adoption of SFAS No. 123(R).


                                       9
<PAGE>

Unearned compensation represents shares issued to executives that will be vested
over a 5-6 year period.  These shares will be amortized  over the vesting period
in accordance  with FASB 123(R).  The expense related to the vesting of unearned
compensation  was  $15,000  and  $0 at  March  31,  2006  and  March  31,  2005,
respectively.

SFAS No. 123(R) requires  disclosure of pro-forma  information for periods prior
to the adoption. The pro-forma disclosures are based on the fair value of awards
at the grant date,  amortized to expense over the service period.  The following
table  illustrates  the effect on net income  and  earnings  per share as if the
Company  had  applied  the fair value  recognition  provisions  of SFAS No. 123,
"Accounting for Stock-Based Compensation",  for the period prior to the adoption
of SFAS No.  123(R),  and the actual effect on net income and earnings per share
for the period after the adoption of SFAS No. 123(R).

<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                    ---------------------------------
                                                                      03/31/06          03/31/05
                                                                    ---------------  ----------------
<S>                                                                 <C>              <C>
Net income, as reported                                                $ 1,694,000        $  507,000
Add: Stock-based employee compensation expense included
  in reported net income, net of related tax effects                        11,000
Deduct:  Total stock-based employee compensation expense
  determined under fair value based method                                 (11,000)         (247,000)
                                                                    ---------------  ----------------
for all awards, net of related tax effects
Net income, pro forma                                                  $ 1,694,000        $  260,000

Earning per share:
    Basic, as reported                                                        0.13              0.04
    Basic, pro forma                                                          0.13              0.02
    Diluted, as reported                                                      0.13              0.04
    Diluted, pro forma                                                        0.13              0.02
</TABLE>



      For the purpose of the above table,  the fair value of each option granted
is  estimated  as of the date of grant  using the  Black-Scholes  option-pricing
model with the following assumptions:

                                            Three Months Ended
                                     March 31, 2006   March 31, 2005
Dividend yield ...................       0.0%               0.0%
Expected volatility ..............       0.70               0.70
Risk-free interest rate ..........       4.50%              4.5%
Expected life in years ...........       1-5                1-5


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                          March 31, 2006

                                                             Weighted        Weighted
                                                              Average         Average
                                                              Exercise       Contractual
                                               Shares          Price        Term (Years)
                                             ------------   -------------   -------------
<S>                                          <C>            <C>             <C>
Outstanding, December 31, 2005                    284,727            1.51
Options granted                                   100,000            6.25
Options reinstated                                     --              --              --
Options exercised                                 (3,333)          (3.83)
Options forfeited or expired
                                             ------------   -------------   -------------
Outstanding March 31, 2006                        381,394            4.02            4.05
                                             ============   =============   =============
Options exercisable, March 31, 2006               254,726            3.43            3.43
                                             ============   =============   =============
Options available for grant at end of year        965,273                         860,603
                                             ============                   =============

</TABLE>

      The following  summarizes  the stock option  activity for the three months
ended March 31, 2006:


10.   Recent Accounting Pronoumcements

In December  2004, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs."
SFAS No. 151  requires  abnormal  amounts  of  inventory  costs  related to idle
facility,  freight  handling and wasted  material  expenses to be  recognized as
current period charges.  Additionally,  SFAS No. 151 requires that allocation of
fixed  production  overheads to the costs of  conversion  be based on the normal
capacity of the  production  facilities.  The standard is  effective  for fiscal
years beginning after June 15, 2005. The adoption of SFAS No. 151 did not have a
material impact on the Company's financial position or results of operations.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections." SFAS No. 154 replaces Accounting  Principles Board ("APB") Opinion
No. 20,  "Accounting  Changes" and SFAS No. 3, "Reporting  Accounting Changes in
Interim Financial Statements." SFAS No. 154 requires  retrospective  application
to prior  periods'  financial  statements  of a voluntary  change in  accounting
principle unless it is impracticable.  APB No. 20 previously  required that most
voluntary  changes in  accounting  principle  be  recognized  by  including  the
cumulative  effect of changing to the new accounting  principle in net income in
the period of the change.  SFAS No. 154 is effective for accounting  changes and
corrections  of errors made in fiscal years  beginning  after December 15, 2005.
The  adoption  of SFAS No. 154 did not have a material  impact on the  Company's
financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155,  "Accounting  for Certain Hybrid
Financial  Instruments,  an amendment of FASB  Statements No. 133 and 140." SFAS
No. 155 resolves issues addressed in SFAS No. 133  Implementation  Issue No. D1,
"Application of Statement 133 to Beneficial  Interests in Securitized  Financial
Assets,"  and  permits  fair  value   remeasurement  for  any  hybrid  financial
instrument  that contains an embedded  derivative  that otherwise  would require
bifurcation,  clarifies which interest-only strips and principal-only strips are
not subject to the  requirements  of SFAS No. 133,  establishes a requirement to
evaluate  interests in securitized  financial assets to identify  interests that
are  freestanding  derivatives  or that are hybrid  financial  instruments  that
contain  an  embedded   derivative   requiring   bifurcation,   clarifies   that
concentrations  of credit  risk in the form of  subordination  are not  embedded
derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying
special-purpose  entity from  holding a  derivative  financial  instrument  that
pertains  to a  beneficial  interest  other than  another  derivative  financial
instrument.  SFAS No. 155 is effective for all financial instruments acquired or
issued after the beginning of the first fiscal year that begins after  September
15, 2006.  The Company is currently  evaluating  the effect the adoption of SFAS
No. 155 will have on its financial position or results of operations.


                                       11
<PAGE>

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial Assets, an amendment of FASB Statement No. 140." SFAS No. 156 requires
an entity to recognize a servicing asset or liability each time it undertakes an
obligation to service a financial  asset by entering  into a servicing  contract
under a transfer of the servicer's  financial assets that meets the requirements
for  sale  accounting,  a  transfer  of the  servicer's  financial  assets  to a
qualified  special-purpose  entity in a guaranteed  mortgage  securitization  in
which the transferor retains all of the resulting securities and classifies them
as either  available-for-sale  or trading securities in accordance with SFAS No.
115,  "Accounting for Certain  Investments in Debt and Equity Securities" and an
acquisition  or assumption  of an  obligation to service a financial  asset that
does  not  relate  to  financial  assets  of the  servicer  or its  consolidated
affiliates.  Additionally,  SFAS No.  156  requires  all  separately  recognized
servicing  assets and  servicing  liabilities  to be initially  measured at fair
value,  permits an entity to choose  either the use of an  amortization  or fair
value method for subsequent measurements, permits at initial adoption a one-time
reclassification  of  available-for-sale  securities  to trading  securities  by
entities with recognized servicing rights and requires separate  presentation of
servicing  assets  and  liabilities  subsequently  measured  at fair  value  and
additional  disclosures  for all  separately  recognized  servicing  assets  and
liabilities.  SFAS No. 156 is effective for transactions  entered into after the
beginning  of the first fiscal year that begins after  September  15, 2006.  The
Company is  currently  evaluating  the effect the  adoption of SFAS No. 156 will
have on its financial position or results of operations.

11.   Revenue Recognition

Revenue is recognized for product sales upon shipment and passing of risk to the
customer and when  estimates of  discounts,  rebates,  promotional  adjustments,
price  adjustments,  returns,  and other  potential  adjustments  are reasonably
determinable,  collection is  reasonably  assured and the Company has no further
performance  obligations.   These  estimates  are  presented  in  the  financial
statements  as  reductions  to net revenues and accounts  receivable.  Estimated
sales returns, allowances and discounts are provided for.

Outbound shipping charges to customers and outbound  shipping-related  costs are
netted and included in "cost of sales."

Returns - Consistent  with  industry  practice,  the Company  maintains a return
policy that allows its customers to return product within a specified period (30
days).  Because the period of payment generally  approximates the period revenue
was originally  recognized,  refunds are recorded as a reduction of revenue when
paid. The Company's estimate for returns is based upon its historical experience
with actual returns. While such experience has allowed for reasonable estimation
in the past,  history may not always be an accurate indicator of future returns.
The Company continually monitors its estimates for returns and makes adjustments
when it believes  that actual  product  returns may differ from the  established
accruals.


                                       12
<PAGE>

                      MANAGEMENT DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, this Report on Form 10-Q
contains certain  forward-looking  statements that involve substantial risks and
uncertainties.  When used in this  Report,  the words  "anticipate,"  "believe,"
"estimate," "expect" and similar expressions,  as they relate to Medifast,  Inc.
or its management, are intended to identify such forward-looking statements. The
Company's actual results,  performance or achievements  could differ  materially
from the results expressed in, or implied by, these forward-looking  statements.
Accordingly,  there is no  assurance  that the  results  in the  forward-looking
statements will be achieved.

GENERAL

THREE MONTHS ENDED MARCH 31, 2006 AND MARCH 31, 2005

Revenues for the first three months of 2006 were  $19,183,000,  representing  an
increase of $10,857,000 (130%) from the $8,326,000  reported for the three-month
period  ending March 31, 2005.  The growth in revenue is primarily the result of
an increased  advertising  campaign which  consisted of print,  TV, internet and
radio advertising which is believed to have increased  consumer awareness of the
Medifast  brand.   Advertising  expense  for  the  first  quarter  of  2006  was
approximately  $2,500,000  as  compared to  approximately  $850,000 in the first
quarter of 2005.  The direct sales  network,  Take Shape For Life,  continues to
experience  increased  sales  volume as a result of the  expansion  of the sales
network.  The Company  continues to create new tools and training  materials for
health  advisors and is in the final stages of  implementing  a new IT platform.
The new software  will empower the Take Shape for Life direct  selling  model by
implementing the infrastructure and tools that are critical in supporting health
advisors  grow  their  business.  At  the  same  time,  we are  implementing  an
Enterprise Resource Management solution to upgrade our technology infrastructure
and improve manufacturing and business processes.  This will enable us to handle
future growth and improve efficiencies across the business platform.

As compared to the first quarter of 2005,  the direct  marketing  sales channel,
which is fueled  primarily by consumer  advertising  increased by  approximately
240% in the first three  months of 2006.  Take Shape for Life  sales,  which are
fueled by person to person  recruiting  and support  increased  by 75% year over
year. The Hi-Energy  corporate clinics  experienced  significant sales growth as
compared to the first three months of 2005.

Due to the significant growth in the first quarter of 2006, Medifast, Inc. began
exploring  third party  over-sourcing  capabilities  in both the call center and
product  production.  The  Company  began  using an  outsourced  call center for
overflow call volume in late April. Also, an outsourced  production facility was
employed  in late April to produce  certain  high  volume  products  in order to
increase  our  inventory  levels for  anticipated  future  growth.  The  Company
believes that these over-sourcing capabilities will provide the Company with the
scalability  necessary to seamlessly  handle  increased  demands as the business
continues to grow.

Cost of sales for the first quarter of 2006 increased by $2,705,000, which was a
130%  increase  from the  first  quarter  of  2005.  Cost of  goods  sold,  as a
percentage  of revenue,  remained  steady at 25% of sales.  Gross profit for the
first quarter of 2006  increased by $8,152,000  (130%) from the first quarter of
2005. Selling, general and administrative expenses for the first quarter of 2006
were  $11,351,000,  which increased by $6,010,000 (113%) as compared to the same
period in 2005. Selling,  general and administrative expenses as a percentage of
sales decreased from 64% at March 31, 2005 to 59% at March 31, 2006.


                                       13
<PAGE>

On January  17,  2006 the  assets of  Consumer  Choice  Systems,  a division  of
Medifast,  Inc.,  were sold to a former Board member.  The promissory note calls
for  monthly  principal  only  payments  over a 10-year  term.  Therefore,  when
imputing an interest rate on the loan, a $323,000 loss had to be realized due to
the  difference  in the  present  value of the note  receivable  compared to the
amount  realizable  over 10-years.  This is a one-time loss that will not effect
any future periods.

The Company reported pre-tax income of $2,819,000,  a 230% increase  compared to
$854,000 for the  quarter-ended  March 31, 2005. The Company reported net income
of  $1,694,000,  or $0.13 per basic  share  ($0.13 per  diluted  share),  versus
$507,000  or $0.04  per basic  share  ($0.04  per  diluted  share) in 2005.  The
increase in earnings  per share is due to sales  growth as well as a decrease in
selling, general and administrative expenses as a percentage of sales.

LIQUIDITY AND CAPITAL RESOURCES

The Company  had  stockholders'  equity of  $23,738,000  and working  capital of
$11,175,000 on March 31, 2006 compared with  $19,748,000 and $8,037,000 at March
31, 2005, respectively.  The $4,072,000 net increase in stockholder's equity and
the  $3,138,000  net  increase  in  working   capital   reflects  the  increased
profitability  of the Company.  The Company's cash position  increased from $1.5
million  at  December  31,  2005 to $3.8  million  at March  31,  2006  which is
attributable  to the  increased  sales and a decrease in expenses as compared to
total sales. On March 31, 2006 the Company's current ratio was 3.4 to 1.

SEASONALITY

The Company's weight  management  products and programs have  historically  been
subject to seasonality. Traditionally the holiday season in November/December of
each year is considered poor for diet control products and services. January and
February  generally show increases in sales,  as these months are considered the
commencement  of the "diet  season." In 2005 and into 2006  seasonality  has not
been much of a factor.  This is largely due to the  increase  in the  consumer's
awareness of the overall health and nutritional  benefits  accompanied  with the
use of the  Company's  product  line.  As consumers  continue to increase  their
association of nutritional weight loss programs with overall health, seasonality
will continue to decrease.

INFLATION

To date, inflation has not had a material effect on the Company's business.

                            ITEM 5. OTHER INFORMATION
Litigation:

There was no material pending or threatened litigation as of 3/31/06.


Long-Term Employment Contracts


                                       14
<PAGE>

The Board of  Directors of Medifast,  Inc. is in the process of  implementing  a
management  succession  plan which  will take place over the next 24 months.  In
doing  so,  they  have  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,  President and Chief Financial  Officer,  Margaret
MacDonald, VP of Operations and Brendan Connors, CPA, VP of Finance.  Bradley T.
MacDonald,  the Executive  Chairman of the Board of Directors and CEO 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.

Planned stock sale
In order to diversify  his  retirement  portfolio  which is largely  invested in
Medifast  stock,  Bradley  MacDonald,  Chairman  and CEO is  planning on selling
approximately  250,000 shares of Medifast  stock over the next 12 months.  After
the sale, he will still  beneficially  own  approximately  1.1 million shares of
Medifast,  Inc.  common stock which would  currently  represent  about 8% of the
outstanding shares.

Earnings Per Share: The Company follows the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per

Share." The  calculation  of basic and  diluted  earnings  per share  ("EPS") is
reflected on the accompanying Consolidated Statement of Operations.

Issuance of Common  Stock:  Due to the  conversion  of all  remaining  shares of
Series "B" preferred stock, dividends paid on Series "C" preferred stock and the
exercising  of warrants  the Company  issued  1,172,386  shares of common  stock
throughout  the first quarter of 2005. Of these shares  issued,  1,122,386  were
from the conversion of Series "B" convertible preferred stock.

Code of Ethics:  In September 2002, the Company  implemented a Code of Ethics by
which  directors,  officers and  employees  commit and undertake to personal and
corporate   growth,   dedicate   themselves   to   excellence,   integrity   and
responsiveness to the marketplace, and work together to enhance the value of the
Company for the shareholders, vendors, and customers.

Trading Policy: In March 2003, the Company  implemented a Trading Policy whereby
if a director,  officer or employee has material non-public information relating
to the  Company,  neither  that  person nor any  related  person may buy or sell
securities of the Company or engage in any other action to take advantage of, or
pass on to others, that information. Additionally, insiders may purchase or sell
MED securities if such purchase or sale is made within 30 days after an earnings
or special  announcement  to include  the 10-K,  10-Q and 8-K in order to insure
that investors have available the same information  necessary to make investment
decisions as insiders.

Internal Control Policy:  As of March 31, 2006, the Company's  management,  with
the participation of the Chief Executive Officer and the President, performed an
evaluation  of the  effectiveness  of the design and  operation of the Company's
disclosure controls and procedures  pursuant to Exchange Act Rule 13a-15.  Based
on that evaluation, the Chief Executive Officer and the President have concluded
that the design and operation of these  disclosure  controls and procedures were
effective as of the end of the period covered by this report. In connection with
this  evaluation,  no change in the Company's  internal  control over  financial
reporting was identified  that occurred during the period covered by this report
that has materially  affected,  or is reasonably  likely to affect the Company's
internal control over financial reporting.


                                       15
<PAGE>

Forward Looking Statements:  Some of the information presented in this quarterly
report constitutes  forward-looking statements within the meaning of the private
Securities  Litigation  Reform Act of 1995.  Statements  that are not historical
facts, including statements about management's expectations for fiscal year 2003
and  beyond,  are  forward-looking  statements  and  involve  various  risks and
uncertainties.  Although the Company believes that its expectations are based on
reasonable  assumptions  within  the  bounds of its  knowledge,  there can be no
assurance  that actual  results will not differ  materially  from the  Company's
expectations.  The Company  cautions  investors  not to place undue  reliance on
forward-looking  statements which speak only to management's  experience on this
date.


                                       16
<PAGE>

                                Index to Exhibits

Exhibit Number    Description of Exhibit

31.1              Certification  of Chief  Executive  Officer  pursuant  to Item
                  601(b)(31) of Regulation  S-K, as adopted  pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

31.2              Certification  of Chief  Financial  Officer  pursuant  to Item
                  601(b)(31) of 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


                                       17