You will have to report the income shown on the 1099-Misc form on your Schedule C. But you can deduct your expenses for inventory, minus the amount you withdrew for personal use, as Cost of Goods Sold, to reduce your gross income. Any additional business expenses you incurred are then subtracted from your gross income to arrive at your net profit or loss. Based on the information you've provided, it would appear your expenses are greater than your income.
