Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Information
This Form 10-Q quarterly report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts, included in this Form 10-Q that address activities, events, or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strength, goals, expansion and growth of our business and operations, plans, references to future success, reference to intentions as to future matters, and other such matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors that we believe are appropriate in the circumstances. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks, uncertainties, and other factors, many of which are beyond our control.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, we do not assume responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results.
General
The following discussion and analysis summarizes the results of operations of Genmed Holding Corp. ("Genmed," the "Company," or "we"), for the three month period ended March 31, 2012.
The Company successfully obtained the Marketing Authorizations for its first generic product within seven countries of the European Union. The Company continued developing its business, and has now entered into negotiations with distributors in four countries within the EU. The Company has started the registration process of its generic product in 5 additional countries within the European Union and expects to obtain the Marketing Authorizations from these countries during the course of 2012.
The Company has also started negotiations with certain distributors in countries outside the European Union to sell a number of its products. The Company hopes that these negotiations will finally result in sales orders, though the Company anticipates that actual sales will take some time to develop due to the registration requirements in the various countries. The Company believes that the registration process in these countries is less costly and less time consuming than the registration process for countries within the European Union, and hopes to be able to start selling its products in a reasonable time.
On April 17, 2008, the Company entered into a Stock Exchange Agreement (the “Stock Exchange Agreement”) with Genmed BV resulting in Genmed BV becoming a wholly owned subsidiary of the Company. Also on April 17, 2008, the Company entered into a General Release and Settlement Agreement (the “General Release and Settlement Agreement) and a consulting agreement with London Finance Group. See Exhibits 10.1, 10.2, and 10.3 incorporated by reference hereto.
In April 2009, the parties to the Stock Exchange Agreement, the General Release and Settlement Agreement and the consulting agreement described above, agreed and formalized by written agreement, to the cancellation of all of the warrants issued pursuant to such agreements, to the cancellation and re-issuing of certain shares issued pursuant to such agreements, and agreed to the cancellation of the consulting agreement with the London Finance Group, including the cancellation of the shares and warrants that have been issued to the London Finance Group as part of such consulting agreement. See Exhibit 10.4 hereto, Release and Settlement Agreement between the Company, Joost de Metz, Willem Blijleven, E.R. Bouwens Beheermaatschappij B.V., Medical Network Holding BV, Total Look, BV, London Finance Group, Ltd., Dojo Enterprises, LLC, Hyperion Fund, L.P., The Palisades Capital, LLC 401(k) Profit Sharing Trust, The Morpheus 2005 Trust dated December 1, 2005, Burton Partners, LLC, Picasso, LLC, and Glacier, LLC.
Comparison of the three months ended March 31, 2012 and 2011
Net Sales. The Company had no sales during the three months ended March 31, 2012 and 2011. Additional variations in some EU countries have been submitted in order to allow the Company to start the sales and marketing. During this process the Company was not allowed to start the sales of its generic product.
Selling, General, and Administrative expenses. The Company incurred $272,497 in Selling, general, and administrative expenses during the three month period ended March 31, 2012 as compared to $345,887 in Selling, general, and administrative expenses for the comparable period in 2011. The decrease in selling, general and administrative expenses was mainly due to a decrease in consulting expenses with respect to the issuances of bonds. Furthermore, the Company had no EU registration expenses and had no company awareness expenses during the period ended March 31, 2012, while it incurred such expenses during the same comparable period in 2011.
Depreciation and Amortization. The Company incurred $840 in depreciation and amortization during the three months ended March 31, 2012, compared $866 in depreciation and amortization during the three months ended March 31, 2011.
Research and Development. The Company incurred $32,850 in Research and Development expenses during the three months ended March 31, 2012, as compared to $26,235 in Research and Development expenses during the three months ended March 31, 2011.
Net Operating Loss. As a result of the Company’s selling, general, and administrative expenses, the Company incurred a net operating loss of $306,187 for the three month period ended March 31, 2012, as compared with $372,988 for the three month period ended March 31, 2011.
Other Income (Expenses). The Company had an income on foreign exchange during the three month period ended March 31, 2012 of $10,031 compared to an income of $42,496 for the three month period ended March 31, 2011. The Company incurred interest expenses of $50,055 during the three month period ended March 31, 2012, as compared to $57,269 in interest expense during the comparable period in 2011. The decrease in interest expense was due primarily to the conversion of the subordinated convertible debt agreements into shares of the Company’s Common Stock in December 2011. During the period ended March 31, 2012, the Company issued an additional $53,351 (€40,000) in interest bearing bonds. Amortization of debt discount of $79,296 was recorded for the three month period ended March 31, 2011 and no debt discount was amortized for the three month period ended March 31, 2012, because the company had amortized the complete amount in debt discount as per December 31, 2011.
Net Loss. The Company incurred a net loss of $357,255 during the three month period ended March 31, 2012, as compared with a net loss of $467,057 for the three month period ended March 31, 2011.
Liquidity and Capital Resources
At March 31, 2012, the Company had a working capital of $586,881.
At March 31, 2012, the Company successfully registered its first generic product in seven EU countries and continued developing its business of the distribution and sale of generic drugs. The Company had no revenues in generic products during the three months ended March 31, 2012 and had no revenues in generic products during the comparable period in 2011.
As of March 31, 2012, the Company was primarily relying on its corporate officers, directors, and outside investors for the funding needed for the implementation of its business plan. The Company’s management is currently looking for the capital needed to complete its corporate objectives. The Company cannot predict the extent to which its liquidity and capital resources will be available prior to executing its business plan or whether it will have sufficient capital to fund typical operating expenses.
If the Company is unable to obtain financing from any of one of these aforementioned sources, the Company would not be able to complete the financial requirements regarding the development of its generic drug distribution business or to continue as a going concern.
In April 2012, the Company entered into a bond agreement for an additional €10,000 (approximately $13,300).
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Smaller reporting companies are not required to provide the information required by this item.
Evaluation of disclosure controls and procedures.
Management is responsible for establishing and maintaining adequate controls over financial reporting. The Company’s disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act of 1934, as amended (the “Exchange Act”), are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and may find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the company’s operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.
Pursuant to rules adopted by the SEC as directed by Section 302 of the Sarbanes-Oxley Act of 2002, the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)) as of March 31, 2012. In making this assessment, our Chief Executive Officer and Chief Financial Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.
Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, were not effective at a reasonable assurance level. Management’s assessment identified the following material weaknesses:
| · | As of March 31, 2012, there was a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles (“GAAP”) in the US and the financial reporting requirements of the Securities and Exchange Commission. |
| · | As of March 31, 2012, there were insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to current requirements of GAAP and SEC disclosure requirements. |
| · | As of March 31, 2012, there was a lack of segregation of duties, in that we had only one person performing all accounting-related duties. |
| · | As of March 31, 2012, there were no independent directors and no independent audit committee. |
Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented. We continue to evaluate the effectiveness of internal controls and procedures on an on-going basis. We plan to further address these issues once we commence operations and are able to hire additional personnel in financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
The Company’s outstanding shares at March 31, 2012 differ from the transfer agent by 15,578,826 shares. The shares are in connection with an April 2009 Release and Settlement Agreement. In accordance with the agreement, certain shareholders (known as the “California Shareholders) who are party to the agreement were to return 15,578,826 shares to the transfer agent and the Company was to reissue 13,178,826 shares to another company controlled by a principal shareholder of the Company. The original 15,578,826 shares were included in a block of shares aggregating 19,740,000 which are part of a law suit involving the California shareholders. In March 2011, the California shareholders obtained a court order whereby they regained possession of the shares which were to be returned to the Company. The Company, assuming the 15,578,826 shares would be returned, issued the 13,178,826 shares under the terms of the Release and Settlement Agreement. As of the filing of this report, the California shareholders have not returned the shares and the Company is vigorously pursuing every available course of action to have the shares returned to the transfer agent and be cancelled.
An investment in our shares is speculative and involves a high degree of risk. Therefore, you should not invest in our shares unless you are able to bear a loss of your entire investment. You should carefully consider the following factors as well as those set forth in our annual report on Form 10-K/A for the year ended December 31, 2011 and the other information contained herein before deciding to invest in our shares. Factors that could cause actual results to differ from our expectations, statements or projections include the risks and uncertainties relating to our business described above. The fact that some of the risk factors may be the same or similar to our past filings means only that the risks are present in multiple periods. We believe that many of the risks detailed here and in our SEC filings are part of doing business in our industry and will likely be present in all periods reported. The fact that certain risks are endemic to our industry does not lessen the significance of the risk. We urge you to carefully consider the following discussion of risks as well as other information regarding our common stock. This report and statements that we may make from time to time may contain forward-looking information. There can be no assurance that actual results will not differ materially from our expectations, statements or projections.
Risk Factors Relating to our Business
The Company is currently in the development stage of its generic drug distribution business and is attempting to develop and maintain relationships with generic drug manufacturers, retail entities, and government regulatory authorities. If the Company is unable to develop and maintain such relationships or unable to secure and maintain contractual relationships with generic drug manufacturers, retail entities, and government regulatory and licensing authorities the Company may not be able to fulfill its business plan and would likely be unable to continue its operations.
Similarly, if the Company is unable to obtain regulatory licensing to distribute, market, and sell its generic drugs, the Company would likely be unable to continue its operations. The Company is seeking to distribute and sell its generic drugs throughout Europe and in other countries. The Company will be subject to certain regulatory requirements which may cause the Company to incur additional expenses and resources maintaining compliance with such regulations, and may slow or stop the Company’s ability to distribute and sell generic drugs.
The distribution of pharmaceuticals and related healthcare solutions is highly competitive. The Company competes with national wholesale distributors of pharmaceuticals; regional and local distributors of pharmaceuticals; chain drugstores that warehouse their own pharmaceuticals; specialty distributors; and other healthcare providers. The Company is competing against more experienced and more developed competitors with greater resources, and established relationships, contracts, and products.
As shown in the accompanying financial statements and notes, the Company has incurred a net loss of $357,255 for the three months ended March 31, 2012 and has an accumulated deficit of $75,794,871 at March 31 2012. The Company is reliant upon its officers and directors for capital and intends to raise capital through equity markets to fund future operations and to generate revenue through its business operations. Failure to raise adequate capital and to generate adequate sales revenues could result in the Company being unable to effectuate its business plan. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurance that such revenue will be sufficient to enable it to develop business to a level where it will generate profits and cash flow from operations. These matters have raised substantial doubt about the Company's ability to continue as a going concern.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 18, 2011, the Company issued 167,000 shares of its common stock to an individual for promotional services valued at $0.12 per share for a total value of $20,040.
On May 23, 2011, the Company issued 5,000,000 shares of its common stock to a Company for financial consulting services valued at $0.17 per share for a total value of $850,000.
On May 23, 2011, the Company issued 1,900,000 shares of its common stock to a company as part of a conversion of the interest payable on subordinated convertible debt valued at $0.02 per share for a total value of $38,000.
On June 10, 2011, the Company issued 1,768,928 shares of its common stock to its CFO as part of a conversion of subordinated convertible debt valued at $0.04 per share for a total value of $70,757.
On December 14, 2011, the Company issued 4,874,335 shares of its common stock to its CFO as part of a conversion of unpaid salaries and management fees at $0.02 per share for a total value of $97,487. The fair value of the common stock exceeded the carrying value of the related payable by $48,744 which was recorded as a loss on settlement of accounts payable during the year ended December 31, 2011.
On December 14, 2011, the Company issued 13,234,666 shares of its common stock to a company that is owned by the Company’s CEO as part of a conversion of unpaid management fees at $0.02 per share for a total value of $264,693. The fair value of the common stock exceeded the carrying value of the related payable by $132,346 which was recorded as a loss on settlement of accounts payable during the year ended December 31, 2011.
On December 14, 2011, the Company issued 2,633,040 shares of its common stock to a company as part of a conversion of unpaid management fees and the conversion of the remainder of a loan payable at $0.02 per share for a total value of $52,661. The fair value of the common stock exceeded the carrying value of the related payable by $26,331 which was recorded as a loss on settlement of accounts payable during the year ended December 31, 2011.
On December 14, 2011, the Company issued 991,121 shares of its common stock to a company as part of a conversion of a subordinated convertible debt, including unpaid interest at $0.04 per share for a total value of $39,645.
On December 14, 2011, the Company issued 13,732,787 shares of its common stock to an individual as part of the conversion of a 10% Secured Convertible Debenture, including all unpaid interest at $0.01 per share for a total value of $ 137,328.
On December 14, 2011, the Company issued 85,595,977 shares of its common stock to a company as part of the conversion of a 10% Secured Convertible Debenture at $0.01 per share for a total value of $ 855,960.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
N/A
None
