**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q/A**




**Amendment
      No. 1**




x
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




For
      the
      quarterly period ended March 31, 2007




OR




**o**
            **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**
              **of
                organization)**
            
            **(I.R.S.
                employer**
              **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  xNo  o




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  o Accelerated
      filer x            Non-accelerated
      filer




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




Yes  o No  x




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




**Class**
            
            **Outstanding at May 8,**
              **2007**Common
                stock, $.001 par value per share
            
            13,668,998
                shares









Explanatory
      Note




This
      Amendment No. 1 to our Form 10-Q for the period ended March 31, 2007 is being
      filed for the purpose of adding to or clarifying our Significant Accounting
      Policies, financial statements, footnotes, and Management Discussion and
      Analysis. In regard to our Significant Accounting Policies we have included
      detail on our deferred compensation plan. We have also provided additional
      information on intangible assets to include the useful lives each type of
      intangible asset is being amortized over as well as additional information
      on
      how the Company tests for impairment. The Company has also clarified its revenue
      recognition policy.




The
      Company has restated its financial statements to properly record amortization
      expense for the three months ended March 31, 2006 and March 31, 2007. See
      footnote 12 for additional detail.




In
      the
      footnotes, the Company has included segment reporting footnote disclosure per
      Financial Accounting Standards Board Statement No. 131, “Disclosures about
      Segments of an Enterprise and Related Information.” The Company has added
      additional segment information to include 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 and
      Clinics. The All Other reporting segments consist of Hi-Energy and Medifast
      Weight Control Centers, the Company’s parent company operations, as well as the
      Consumer Choice Systems, Inc. division which was sold in January of
      2006.




Item
      7,
“Management Discussion and Analysis” has been updated to include additional
      detail on selling, general, and administrative expenses changes for the three
      months ended March 31, 2006 and March 31, 2007




Except
      as
      discussed above, we have not modified or updated the disclosure presented in
      the
      original quarterly filing. This Form 10-Q/A does not reflect events that
      have occurred after the filing of the original quarterly report or modify or
      update disclosures presented in the original quarterly filing affected by
      subsequent events. Accordingly, this Form 10-Q/A should be read in
      conjunction with our filings made with the Securities and Exchange Commission
      (“SEC”) subsequent to the date of the filing of the original quarterly report.




In
      addition, in accordance with applicable SEC rules, this Form 10-Q/A
      includes updated certifications from our Chief Executive Officer and Chief
      Financial Officer.




2




Index




**Part
                I****Financial
                Information:**Condensed
                Consolidated Balance Sheets -
              March
                31, 2007 (unaudited) and December 31, 2006 (audited)
            4Condensed
                Consolidated Statements of Income -
              Three
                Months Ended March 31, 2007 and 2006 (unaudited)
            5Condensed
                Consolidated Statements of Cash Flows -
              Three
                Months Ended March 31, 2007 and 2006 (unaudited)
            6Notes
                to Condensed Consolidated Financial Statements
            8Management
                Discussion and Analysis of Financial Condition And Results of
                Operations
            15**Part
                II**Exhibits
            20EX
                31.1EX
                31.2EX
                32.1





3




**MEDIFAST,
      INC. AND SUBSIDIARIES** **CONDENSED
        CONSOLIDATED BALANCE SHEETS**


(Restated)
            
            (Restated)March 31, 2007
            
            December 31, 2006(Unaudited)
            
            (Audited)**ASSETS****Current
                assets:**Cash
            
            $
            1,857,000
            
            $
            1,085,000Accounts
                receivable-net of allowance for doubtful accounts of
                $100,000
            
            
            525,000
            
            
            448,000Inventory
            
            
            8,707,000
            
            
            8,255,000Investment
                securities
            
            
            1,414,000
            
            
            1,540,000Deferred
                compensation
            
            
            798,000
            
            
            673,000Prepaid
                expenses and other current assets
            
            
            3,483,000
            
            
            2,599,000Note
                receivable - current
            
            
            174,000
            
            
            174,000Deferred
                tax asset
            
            
            92,000
            
            
            90,000**Total
                Current Assets**
            
            
            **17,050,000**
            
            
            **14,864,000**Property,
                plant and equipment - net
            
            
            14,575,000
            
            
            14,020,000Trademarks
                and intangibles - net
            
            
            5,817,000
            
            
            5,874,000Deferred
                tax asset, net of current portion
            
            
            603,000
            
            
            517,000Note
                receivable, net of current portion
            
            
            1,314,000
            
            
            1,355,000Other
                assets
            
            
            53,000
            
            
            47,000**TOTAL
                ASSETS**
            
            **$**
            **39,412,000**
            
            **$**
            **36,677,000****LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                liabilities:**Accounts
                payable and accrued expenses
            
            $
            3,615,000
            
            $
            2,913,000Income
                taxes payable
            
            
            689,000
            
            
            535,000Line
                of credit
            
            
            1,906,000
            
            
            1,256,000Current
                maturities of long-term debt
            
            
            528,000
            
            
            548,000**Total
                current liabilities**
            
            
            **6,738,000**
            
            
            **5,252,000**Long-term
                debt, net of current portion
            
            
            3,392,000
            
            
            3,509,000**Total
                Liabilities**
            
            
            **10,130,000**
            
            
            **8,761,000****Stockholders'
                Equity:**Common
                  stock; par value $.001 per share; 20,000,000 authorized; 13,643,998
                  and
                  12,782,791 shares issued and outstanding,
                  respectively
            
            
            14,000
            
            
            14,000Additional
                paid-in capital
            
            
            26,752,000
            
            
            26,629,000Accumulated
                other comprehensive income
            
            
            348,000
            
            
            334,000Retained
                Earnings
            
            
            7,354,000
            
            
            5,981,000**34,468,000**
            
            
            **32,958,000**Less:
                cost of 274,184 and 210,902 shares of common stock in
                treasury
            
            
            (1,994,000
            )
            
            (1,686,000
            )Less:
                unearned compensation
            
            
            (3,192,000
            )
            
            (3,356,000
            )**Total
                Stockholders' Equity**
            
            
            **29,282,000**
            
            
            **27,916,000****TOTAL
                LIABILITIES & STOCKHOLDERS' EQUITY**
            
            **$**
            **39,412,000**
            
            **$**
            **36,677,000**





See
      accompanying notes to condensed consolidated financial statement.




4




**MEDIFAST,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**





**Three Months Ended March 31,**(Restated)
            
            (Restated)**2007**
            
            **2006**(Unaudited)
            
            (Unaudited)Revenue
            
            $
            20,089,000
            
            $
            19,183,000Cost
                of sales
            
            
            5,058,000
            
            
            4,778,000**Gross
                Profit**
            
            
            **15,031,000**
            
            
            **14,405,000**Selling,
                general, and administration
            
            
            13,117,000
            
            
            11,455,000**Income
                from operations**
            
            
            1,914,000
            
            
            2,950,000Other
                income/(expense)Interest
                expense
            
            
            (95,000
            )
            
            (89,000
            )Interest
                income
            
            
            33,000
            
            
            98,000Other
                expense
            
            
            51,000
            
            
            79,000(11,000
            )
            
            88,000**Net
                income before provision for income taxes**
            
            
            **1,903,000**
            
            
            **3,038,000**Provision
                for income tax (expense)
            
            
            (530,000
            )
            
            (1,037,000
            )**Net
                income**
            
            **$**
            **1,373,000**
            
            **$**
            **2,001,000**Basic
                earnings per share
            
            $
            0.11
            
            $
            0.15Diluted
                earnings per share
            
            $
            0.10
            
            $
            0.15Weighted
                average shares outstanding -Basic
            
            
            12,899,543
            
            
            12,965,518Diluted
            
            
            13,690,788
            
            
            13,474,411





See
      accompanying notes to condensed consolidated financial statements.




5




**MEDIFAST,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**





Three
                Months Ended March 31,(Restated)
            
            (Restated)2007
            
            2006(Unaudited)
            
            (Unaudited)Cash
                flows from operating activities:Net
                income
            
            $
            1,373,000
            
            $
            2,001,000Adjustments
                  to reconcile net income to net cash provided by operating activities
                  from
                  continuing
                  operations:Depreciation
                and amortization
            
            
            786,000
            
            
            540,000Realized
                (gain) loss on investment securities
            
            
            32,000
            
            
            (19,000
            )Loss
                on sale of Consumer Choice Systems
            
            
            -
            
            
            323,000Common
                stock issued for services
            
            
            21,000
            
            
            33,000Stock
                options vested during period
            
            
            77,000
            
            
            18,000Excess
                tax benefits from share-based payment arrangements
            
            
            30,000
            
            
            (6,000
            )Vesting
                of unearned compensation
            
            
            164,000
            
            
            15,000Net
                change in other comprehensive (loss) income
            
            
            14,000
            
            
            (55,000
            )Deferred
                income taxes
            
            
            (88,000
            )
            
            (350,000
            )Changes
                in assets and liabilities:(Increase)
                decrease in accounts receivable
            
            
            (76,000
            )
            
            79,000(Increase)
                decrease in inventory
            
            
            (452,000
            )
            
            46,000(Increase)
                decrease in prepaid expenses & other current assets
            
            
            (885,000
            )
            
            835,000(Increase)
                in deferred compensation
            
            
            (125,000
            )
            
            (102,000
            )Decrease
                in other assets
            
            
            (6,000
            )
            
            (1,000
            )Increase
                in accounts payable and accrued expenses
            
            
            701,000
            
            
            652,000(Decrease)
                in deferred tax liability
            
            
            -
            
            
            (191,000
            )Increase
                (decrease) in income taxes payable
            
            
            154,000
            
            
            (416,000
            )Net
                cash provided by operating activities
            
            
            1,720,000
            
            
            3,402,000Cash
                Flow from Investing Activities:(Purchase)
                sale of investment securities, net
            
            
            97,000
            
            
            (44,000
            )(Purchase)
                of property and equipment
            
            
            (1,044,000
            )
            
            (763,000
            )(Purchase)
                of intangible assets
            
            
            (240,000
            )
            
            (150,000
            )Net
                cash (used in) investing activities
            
            
            (1,187,000
            )
            
            (957,000
            )Cash
                Flow from Financing Activities:Issuance
                of common stock, options and warrants
            
            
            24,000
            
            
            13,000(Repayment)
                of long-term debt, net
            
            
            (137,000
            )
            
            (155,000
            )Increase
                in line of credit
            
            
            650,000
            
            
            -Decrease
                in note receivable
            
            
            41,000
            
            
            -Excess
                tax benefits from share-based payment arrangements
            
            
            (30,000
            )
            
            6,000(Purchase)
                of treasury stock
            
            
            (309,000
            )
            
            -Net
                cash provided by (used in) financing activities
            
            
            239,000
            
            
            (136,000
            )**NET
                      INCREASE IN CASH AND CASH
                      EQUIVALENTS**
            
            
            772,000
            
            
            2,309,000Cash
                and cash equivalents - beginning of the period
            
            
            1,085,000
            
            
            1,484,000Cash
                and cash equivalents - end of period
            
            $
            1,857,000
            
            $
            3,793,000Supplemental
                disclosure of cash flow information:Interest
                paid
            
            $
            95,000
            
            $
            89,000Income
                taxes
            
            $
            464,000
            
            $
            1,231,000Supplemental
                disclosure of non cash activity:Common
                stock issued to executives over 6-year vesting period
            
            $
            -
            
            $
            3,373,000Common
                shares issued for options and warrants
            
            $
            -
            
            $
            384,000Options
                vested during period
            
            $
            77,000
            
            $
            18,000Common
                stock issued for services
            
            $
            21,000
            
            $
            33,000Line
                of credit converted to long-term debt
            
            $
            -
            
            $
            369,000





See
      accompanying notes to condensed consolidated financial statements.




6




**MEDIFAST,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)**





Three Months Ended March 31,2007
            
            2006(Restated)
            
            (Restated)(Unaudited)
            
            (Unaudited)Supplemental
                disclosure of non cash activity:Sale
                of Consumer Choice SystemsInventory
            
            $
            -
            
            $
            358,000Accounts
                Receivable
            
            
            -
            
            
            131,000Intangible
                assets, net
            
            
            -
            
            
            1,337,000Note
                receivable
            
            
            -
            
            
            (1,503,000
            )Loss
                on sale of Consumer Choice Systems
            
            
            -
            
            
            (323,000
            )$
            -
            
            $
            -





See
      accompanying notes to condensed consolidated financial statements.




7




**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, 2006 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. Upon the sale of Consumer
      Choice Systems, Inc. on January 17, 2006, the goodwill balance of $894,000
      was
      removed from the Company’s books.





In
      addition, the Company has acquired other intangible assets, which include:
      customer lists, non-compete agreements, trademarks, patents, and copyrights.
      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 and 7 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 7 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 intangible assets are tested annually for impairment 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
      intangible 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.




8






**As
                of March 31, 2007**
            
            **As
                of December 31, 2006**(Restated)
            
            (Restated)
            
            (Restated)
            
            (Restated)**Gross Carrying**
            
            **Accumulated**
            
            **Gross Carrying**
            
            **Accumulated****Amount**
            
            **Amortization**
            
            **Amount**
            
            **Amortization**Customer
                lists
            
            $
            5,791,000
            
            $
            2,207,000
            
            $
            5,587,000
            
            $
            1,969,000Non-compete
                agreements
            
            
            840,000
            
            
            840,000
            
            
            840,000
            
            
            840,000Trademarks,
                patents, and copyrightsfinite
                life
            
            
            1,592,000
            
            
            268,000
            
            
            1,557,000
            
            
            210,000infinite
                life
            
            
            909,000
            
            
            
            
            
            909,000Total
            
            $
            9,132,000
            
            $
            3,315,000
            
            $
            8,893,000
            
            $
            3,019,000





**Amortization
      expense for the three months ended March 31, 2007 and 2006 was as
      follows:**





(Restated)
            
            (Restated)2007
            
            2006Customer
                lists
            
            
            
            
            
            
            
            $
            239,000
            
            
            193,000Non-compete
                agreements
            
            
            
            
            
            
            
            
            -
            
            
            97,000Trademarks
                and patents
            
            
            
            
            
            
            
            
            58,000
            
            
            27,000Total
                Trademarks and Intangibles
            
            
            
            
            
            
            
            $
            297,000
            
            $
            317,000





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.




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 imputed interest of 4% collateralized by 50,000 shares of Medifast
      stock and all the assets of Consumer Choice Systems. 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 $495,000.




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.




9




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.
            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 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.





10.
            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 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 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).





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 $77,000 and $18,000 at March 31, 2007 and March 31, 2006,
      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).




10




Three
                  Months Ended(Restated)
              
              (Restated)03/31/07
              
              03/31/06Net
                  income, as reported
              
              $
              1,373,000
              
              $
              2,001,000Add:
              Stock-based
                employee compensation expense included in reported net income, net
                of
                related tax effects
              
              
              77,000
              
              
              11,000Deduct:
              Total
                stock-based employee compensation expense determined under fair value
                based method for all awards, net of related tax effects
              
              
              (77,000
              )
              
              (11,000
              )Net
                  income, pro forma
              
              $
              1,373,000
              
              $
              2,001,000Earning
                  per share:Basic,
                  as reported
              
              $
              0.11
              
              $
              0.15Basic,
                  pro forma
              
              $
              0.11
              
              $
              0.15Diluted,
                  as reported
              
              $
              0.10
              
              $
              0.15Diluted,
                  pro forma
              
              $
              0.10
              
              $
              0.15




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 EndedMarch 31, 2007
            
            March 31, 2006Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %Expected
                volatility
            
            
            0.70
            
            
            0.70Risk-free
                interest rate
            
            
            4.70
            %
            
            4.5
            %Expected
                life in years
            
            
            1-5
            
            
            1-5





The
      following summarizes the stock option activity for the Three Months ended March
      31, 2007:





March
                31, 2007Shares
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Contractual
              Term (Years)Outstanding,
                December 31, 2006
            
            
            321,579
            
            
            3.76Options
                grantedOptions
                reinstatedOptions
                exercised
            
            
            (27,500
            )
            
            0.89Options
                forfeited or expiredOutstanding
                March 31, 2007
            
            
            294,079
            
            
            4.16
            
            
            3.01Options
                exercisable, March 31, 2007
            
            
            204,077
            
            
            2.75
            
            
            2.63Options
                available for grant at end of year
            
            
            928,421




11




10.
            Recent
                Accounting Pronouncements




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
      re-measurement 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. This standard did not have a material impact on the Company’s consolidated
      financial position, results of operations, or cash flows.




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. This standard did not have a material impact on the
      Company’s consolidated financial position, results of operations, or cash
      flows.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, Fair Value Measurements, and (“FAS 157”). This Standard defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      FAS
      157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007 and interim periods within those fiscal years. The
      adoption of FAS 157 is not expected to have a material impact on the Company’s
      financial position, results of operations or cash flows.





The
      FASB
      also issued in September 2006 Statement of Financial Accounting Standards No.
      158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans — an amendment of FASB Statement No. 87, 88, 106 and 132(R), (“FAS 158”).
      This Standard requires recognition of the funded status of a benefit plan in
      the
      statement of financial position. The Standard also requires recognition in
      other
      comprehensive income certain gains and losses that arise during the period
      but
      are deferred under pension accounting rules, as well as modifies the timing
      of
      reporting and adds certain disclosures. FAS 158 provides recognition and
      disclosure elements to be effective as of the end of the fiscal year after
      December 15, 2006 and measurement elements to be effective for fiscal years
      ending after December 15, 2008. The Company has not yet analyzed the impact
      FAS
      158 will have on its financial condition, results of operations, cash flows
      or
      disclosures.





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin (“SAB”) No. 108, “Quantifying Misstatements.” SAB 108
      provides interpretative guidance on how public companies quantify financial
      statement misstatements. There have been two common approaches used to quantify
      such errors. Under an income statement approach, the “roll-over” method, the
      error is quantified as the amount by which the current year income statement
      is
      misstated. Alternatively, under a balance sheet approach, the “iron curtain”
method, the error is quantified as the cumulative amount by which the current
      year balance sheet is misstated. In SAB 108, the SEC established an approach
      that requires quantification of financial statement misstatements based on
      the
      effects of the misstatements on each of the company’s financial statements and
      the related financial statement disclosures. This model is commonly referred
      to
      as a “dual approach” because it requires quantification of errors under both the
      roll-over and iron curtain methods. SAB 108 is effective for the first fiscal
      year ending after November 15, 2006. The adoption of SAB 108 did not have a
      material impact on the Company’s consolidated financial position and results of
      operations.





In
      June
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute
      for financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return, and also provides guidance on
      de-recognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The adoption of FIN 48 is not expected
      to have a material impact on the Company’s consolidated financial position,
      results of operations, or cash flows.





12




11.
            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.





12.
            Restatements





The
      March
      31, 2006 financial statements have been restated to decrease amortization
      expense on customer lists by $219,000. Pre-tax income increased by $219,000
      for
      the quarter-ended March 31, 2006 from $2,819,000 to $3,038,000. Net income
      for
      the quarter-ended March 31, 2006 increased by $307,000 from $1,694,000 to
      $2,001,000 and retained earnings increased from $2,519,000 to
      $2,826,000.





The
      March
      31, 2007 financial statements have been restated to increase amortization
      expense on customer lists by $84,000. Pre-tax income decreased by $84,000 for
      the quarter-ended March 31, 2007 from $1,987,000 to $1,903,000. Net income
      for
      the quarter-ended March 31, 2007 decreased by $49,000 from $1,422,000 to
      $1,373,000 and retained earnings decreased from $7,403,000 to
      $7,354,000.





13.
            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 and Clinics. The All Other
      reporting segments consist of Hi-Energy and Medifast Weight Control Centers,
      the
      Company’s parent company operations, as well as the Consumer Choice Systems,
      Inc. division which was sold in January of 2006.




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.




13




The
      following tables present segment information for the three months ended March
      31, 2007 and 2006:





**Three
                Month Ended March 31, 2007 (Restated)****Medifast**
            
            **All
                Other**
            
            **Eliminations**
            
            **Consolidated**Revenues,
                net
            
            
            18,183,000
            
            
            1,906,000
            
            
            
            
            
            20,089,000Cost
                of Sales
            
            
            4,829,000
            
            
            229,000
            
            
            
            
            
            5,058,000Other
                Selling, General and Adminstrative Expenses
            
            
            10,254,000
            
            
            2,026,000
            
            
            
            
            
            12,280,000Depreciation
                and Amortization
            
            
            657,000
            
            
            129,000
            
            
            
            
            
            786,000Interest
                (net)
            
            
            (8,000
            )
            
            70,000
            
            
            
            
            
            62,000Provision
                for income taxes
            
            
            530,000
            
            
            
            
            
            
            
            
            530,000Net
                income (loss)
            
            
            1,921,000
            
            $
            (548,000
            )
            
            
            
            
            1,373,000Segment
                Assets
            
            
            23,831,000
            
            
            15,581,000
            
            
            
            
            
            39,412,000





**Three
                Month Ended March 31, 2006 (Restated)****Medifast**
            
            **All
                Other**
            
            **Eliminations**
            
            **Consolidated**Revenues,
                net
            
            
            18,366,000
            
            
            817,000
            
            
            
            
            
            19,183,000Cost
                of Sales
            
            
            4,648,000
            
            
            130,000
            
            
            
            
            
            4,778,000Other
                Selling, General and Adminstrative Expenses
            
            
            9,510,000
            
            
            1,326,000
            
            
            
            
            
            10,836,000Depreciation
                and Amortization
            
            
            354,000
            
            
            186,000
            
            
            
            
            
            540,000Interest
                (net)
            
            
            (67,000
            )
            
            58,000
            
            
            
            
            
            (9,000
            )Provision
                for income taxes
            
            
            1,037,000
            
            
            0
            
            
            
            
            
            1,037,000Net
                income (loss)
            
            
            2,884,000
            
            $
            (883,000
            )
            
            
            
            
            2,001,000Segment
                Assets
            
            
            18,585,000
            
            
            13,571,000
            
            
            
            
            
            32,156,000





14




**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.*





**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 assumptions 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 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.




**General**


**Three
      Months Ended March 31, 2007 and March 31, 2006**





Revenue:
      Revenue increased to $20.1 million for the first three months of 2007 as
      compared to $19.2 million for the first three months of 2006, an increase of
      $900,000 or 5%. The direct marketing sales channel accounted for 60% of total
      revenue, Take Shape for Life 30%, doctors 5%, and clinics 5%. As compared to
      the
      first three months of 2006, the direct response sales channel revenue increased
      by 4%. Direct response is normally fueled primarily by consumer advertising;
      however, in the first quarter of 2006 it was also fueled largely by a
      substantial editorial placement in a major consumer publication at no cost
      to
      the Company. Take Shape for Life sales, which are fueled by person-to-person
      recruiting and support increased by 6% year-over-year. The Company’s clinic
      division which began operating under the Medifast Weight Control Center name
      in
      late 2006, increased sales by 21% as compared to the first quarter of
      2006.





15




Throughout
      the fourth quarter of 2006, the Company expanded the direct response marketing
      department to evaluate and analyze the past year’s media effectiveness and to
      more effectively spend the Company’s increased advertising budget in 2007. In
      the fourth quarter of 2006, the Company analyzed the past years overall campaign
      metrics such as response rates, closing rates and media costs in order to
      improve on these metrics moving forward. The first quarter of 2007 was largely
      spent applying knowledge gained from this analysis to utilize the most effective
      aspects of the 2006 advertising campaigns. This was done to both show the
      improvements in the campaigns execution, while also utilizing the first quarter
      to create new advertising campaigns that were launched at the end of the first
      quarter and will continue to roll out with larger spend throughout the remainder
      of 2007. This strategy, led to improved month-to-month return on advertising
      dollars throughout the first quarter of 2007.  As
      compared to our 2006 advertising campaign, the 2007 campaign includes long-form
      television infomercials, new 60 second TV commercials, an expanded presence
      on
      the web, and new creative for our print and radio advertisements. The Company
      anticipates the quarterly advertising budget to increase throughout the second
      and third quarter of 2007. In the first quarter of 2007, the Company spent
      $4.3
      million on direct response marketing.





The
      Take
      Shape for Life network grew 6% year-over-year as the Company continues focusing
      on providing tools to help the network recruit additional health coaches. The
      Company made substantial investment in 2006 to provide the health coaches with
      a
      comprehensive business tool that will drive recruiting within the Organization
      as well as lead to a higher lifetime value of customers and health coaches.
      In
      Q1 of 2007, the Take Shape for Life Network was in the beginning stages of
      recruiting growth and this will remain a focus throughout the remainder of
      2007.





Medifast
      Weight Control Centers are currently operating in 10 locations in Texas and
      Florida. In Q1 of 2007, the Clinics realized sales growth of 21% compared to
      Q1
      of 2006. Additional clinics will be opened in Florida and Texas throughout
      Q2
      and Q3. This model will be available for franchise opportunities toward the
      end
      of the second quarter.





Throughout
      the fourth quarter of 2006 and the first quarter of 2007, the Company has
      continued to invest in the executive expertise necessary to drive the Medifast
      direct response and Take Shape for Life models, which represent 90% of the
      total
      business revenue, along with the Information Technology infrastructure expertise
      to support both of these hi-tech business models. The hiring of Richard Zeeb,
      VP
      of Direct Response Marketing, Rodman Heckman, EVP Take Shape for Life, and
      John
      Hamilton, Chief Information Officer, who each have extensive years of specific
      industry experience has provided the Company the expertise needed in each of
      these critical areas. The timing of these hires did not allow them to have
      their
      full potential impact on the business in the first quarter of 2007, however,
      we
      expect based on current Company trends and these individuals industry histories,
      that the Company will recognize significant improvements in their division’s
      effectiveness in both the short and long term.





Overall,
      selling, general and administrative expenses increased by $1,662,000 in the
      first quarter of 2007 as compared to the first three months of 2006. The
      majority of the increase was due to advertising expense increasing by
      approximately $1.3 million as compared to the prior year. In prior year, the
      advertising proved more cost-effective due to a substantial editorial placement
      in a major consumer publication at no cost to the Company. Personnel expenses
      increased by approximately $400,000 compared to prior year as the Company hired
      additional expertise in critical areas in order to assist in future growth.
      This
      primarily includes IT, nutrition and product development, marketing, and Take
      Shape for Life. Take Shape commission expense, which is completely variable
      in
      relation to sales, increased by approximately $100,000. Stock compensation
      expense increased by $208,000 as stock awards vested over 5 and 6 year terms
      for
      executives. The expense increases were offset by a decrease in office expense
      of
      approximately $50,000, a decrease in other expense, which includes items such
      as
      depreciation, amortization, bank charges, charitable contributions, and property
      taxes, of approximately $50,000 and the absence of a $323,000 loss resulting
      from the sale of the Consumer Choice Systems division in the first quarter
      of
      2006.





Costs
      and
      Expenses: Cost of revenue increased $280,000 to $5.1 million in the first three
      months of 2007 from $4.8 million in 2006. As a percentage of sales, gross margin
      remained at approximately 75% for the first quarter of 2007 and 2006.





Income
      taxes **:** **** **** For
      the
      first three months of 2007, we recorded $530,000 in income tax expense, which
      represents an annual effective rate of 28%. For the first three months of 2006,
      we recorded income tax expense of $1 million which reflected an estimated annual
      effective tax rate of 34%. The Company anticipates a tax rate of approximately
      36-38% in 2007.





Net
      income: Net income was $1.4 million in the first three months of 2007 as
      compared to $2 million in the first three months of 2006, which reflected a
      decrease of $600,000 or 30%. The decrease in profit is primarily the result
      of
      an editorial placement in a major consumer magazine in the prior year first
      quarter which resulted in a material increase in sales that resulted in the
      increased profits.




16




**SEGMENT
      RESULTS OF OPERATIONS**




**Net
                Sales by Segment as of March 31,****2007**
            
            **2006****Segments**
            
            Sales
            
            %
                of Total
            
            Sales
            
            %
                of TotalMedifast
            
            
            19,249,000
            
            
            96
            %
            
            18,366,000
            
            
            96
            %All
                Other
            
            
            840,000
            
            
            4
            %
            
            817,000
            
            
            4
            %Total
                Sales
            
            
            20,089,000
            
            
            100
            %
            
            19,183,000
            
            
            100
            %




**Three
      Months Ended March 31, 2007 and March 31, 2006**





Medifast
      Segment: The Medifast reporting segment consists of the sales of Medifast
      Direct, Take Shape for Life, and Doctors and Clinics. As this represents the
      majority of our business this is referenced to the “Consolidated Results of
      Operations” management discussion for the three months ended March 31, 2007 and
      2006 above.





All
      Other
      Segment: The All Other reporting segment consists of the sales of Hi-Energy
      and
      Medifast Weight Control Centers. Sales increased by $23,000 year-over year
      as a
      result of an increase in Hi-Energy and Medifast Weight Control Centers sales
      to
      $840,000. The increase in the Hi-Energy and Medifast Weight Control Centers
      sales were due to spending increases for advertising, increased advertising
      effectiveness, improved closing rates on walk-in sales, as well as the hiring
      of
      more experienced clinic operators to manage the clinics. In addition, new
      programs were developed that extended the lifetime value of each
      customer.





**Net
                Profit by Segment as of March 31,****2007**
            
            **2006****Segments**
            
            Profit
            
            %
                of Total
            
            Profit
            
            %
                of TotalMedifast
            
            
            2,071,000
            
            
            151
            %
            
            2,581,000
            
            
            129
            %All
                Other
            
            
            (698,000
            )
            
            -51
            %
            
            (580,000
            )
            
            -29
            %Total
                Net Profit
            
            
            1,373,000
            
            
            100
            %
            
            2,001,000
            
            
            100
            %




**Three
      Months Ended March 31, 2007 and March 31, 2006**





Medifast
      Segment: The Medifast reporting segment consists of the profits of Medifast
      Direct, Take Shape for Life, and Doctors and Clinics. As this represents the
      majority of our business this is referenced to the “Consolidated Results of
      Operations” management discussion for the three months ended March 31, 2007 and
      2006 above. See footnote 13, “Business Segments” for a detailed breakout of
      expenses





All
      Other
      Segment: The All Other reporting segment consists of the losses of Hi-Energy
      and
      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 $118,000 Stock compensation expense to officers of the company resulted
      in an
      increased expense of $241,000, which if taken out of the All Other segment
      expense, leads to an overall improvement in profitability over the previous
      year
      of $123,000. The Hi-Energy and Medifast Weight Control Centers showed an
      increase in net profitability year-over-year of $14,000. The remaining increase
      in net profitability for the All Other segments was due to the decrease in
      expenses in Jason Enterprises as a result of the sale of CCS. See footnote
      13,
“Business Segments” for a detailed breakout of expenses.




17




**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 2007, seasonality has not been a
      significant 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 3/31/07.





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.





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, on October 16, 2006 the Board of Directors approved
      an updated trading policy in which insiders may purchase or sell MED securities
      if such purchase or sale is made 7 days after or 14 days before an earnings
      announcement to include the 10-K
      or
      10-Q in
      order
      to insure that investors have available the same information necessary to make
      investment decisions as insiders.





Evaluation
      of Disclosure Controls and Procedures:




In
      connection with the aforementioned restatement of our financial statements,
      under the supervision and with the participation of our management, including
      our principal executive officer and principal financial officer, we reevaluated,
      as of March 31, 2007, the effectiveness of the design and operation of our
      disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934, as amended (the “Act”). Based upon
      that reevaluation, as a result of a material weakness in internal control over
      financial reporting with respect to amortization expense on a customer list,
      our
      principal executive officer and principal financial officer have concluded
      that
      our disclosure controls and procedures were not effective to provide reasonable
      assurance that information required to be disclosed by us in the reports that
      we
      file or submit under the Act is (i) recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms; and (ii) accumulated and communicated to our
      management, including our principal executive and principal financial officers,
      as appropriate to allow timely decisions regarding required disclosures. In
      connection with the Original Filing and prior to our discovery of the error
      relating to amortization expense on a customer list, our principal executive
      officer and principal financial officer had concluded that our disclosure
      controls and procedures were effective as of March 31, 2007 to a reasonable
      assurance level.




Changes
      in Internal Control over Financial Reporting:




There
      was
      no change in our internal control over financial reporting during the quarter
      ended March 31, 2007 that has materially affected, or is reasonably likely
      to materially affect, our internal control over financial reporting. As
      disclosed in our annual report for the year ended December 31, 2006 on Form
      10-K/A filed with the Securities and Exchange Commission on September 6, 2007,
      we determined that as of December 31, 2006 there was a material weakness in
      our
      internal controls over financial reporting with respect to amortization expense
      on a customer list. We have determined that this material weakness still existed
      as of March 31, 2007.





18




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 data.




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this Report to be signed on its behalf by the undersigned, thereunto
      duly authorized.





**Medifast,
      Inc.**




BY:
            /S/
                MICHAEL S. MCDEVITT
            
            September
                6, 2007Michael
                S. McDevittChief
                Executive Officer and Chief Financial Officer(principal
                executive officer and principal financial officer)




19




Index
      to
      Exhibits





Exhibit
                Number
              
              Description
                of Exhibit31.1
              
              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




20