Mail Stop 0309
April 22, 2005
Mr. Paul Mitchell, President
Med Gen, Inc.
7284 W. Palmetto Park Road - Suite 207
Boca Raton, Florida 33433
Re: Med Gen, Inc.
Amendment No. 1 to Form SB-2 Registration Statement
File No. 333-122093
Form 10-KSB for the fiscal year ended September 30, 2004
Form 10-QSB for the period ended December 31, 2004
File No. 0-29171
Dear Mr. Mitchell:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Prospectus Cover Page
1. We note the revisions you made in response to comment 3.
However,
you did not expand the disclosure regarding your stock price to
indicate that the prices may not reflect any actual transactions.
Please include this information in your next amendment. Also,
update
the stock price information to the most recent practicable date.
2. Please disclose the page number for the risk factors.
Risk Factors - page 2
Our success is dependent upon its ability to manage anticipated
growth... - page 5
3. Your revisions to the risk factor in response to comment 24 do
not
fully address the questions we raised. As we previously
requested,
please explain, in light of your current financial condition, how
you
propose to do this. Quantify the disclosure to the extent
practicable. Your revised disclosure should also be specific
about
what the term "rapid growth" means for your business.
In fiscal year 2004, our Company`s three largest customers were
Wal-
Mart, Walgreens and Eckerd which represented 66% of our Company`s
annual sales that year... - page 5
4. We note that you revised this risk factor to include mitigating
language. Please delete the last two sentences of the risk
factor.
Instead, please disclose what the material adverse consequences
would
be if you were to lose one of the named customers, as we
previously
requested in comment 26.
5. We note that you did not provide the information we requested
in
comment 30. Please describe your efforts to sell your products to
new accounts and how successful they have been to date. The
discussion should be quantified to the extent practicable.
Our Company`s ability to continue as a going concern is contingent
upon its ability to secure additional financing, increase
ownership
equity and attain profitable operations... - page 5
6. In comment 32, we asked you to be more specific about what you
meant when you said that your ability to continue as a going
concern
"must be considered in light of the problems, expenses and
complications frequently encountered in established markets and
the
competitive environment in which our Company operates." The
quoted
language continues to appear in the risk factor. Please revise
the
discussion to explain, in reasonable detail, what these problems,
expenses and complications are, and how you have been adversely
affected in the past.
7. We note that you left a blank space instead of disclosing the
amount of capital you will need to raise to pay for marketing and
advertising your products. Please fill it in when you file your
next
pre-effective amendment.
If our Company loses key management personnel, it may not be able
to
successfully operate its business. - page 5
8. In comment 33 we had asked you to discuss whether you have
employment agreements with the named individuals, and indicate
whether you have any reason to believe that you might lose their
services. We do not understand why you added the disclosure
indicating that you entered into such agreements in 2002 and
terminated them in 2003. Please replace that language with a
simple
statement indicating that you do not have such agreements.
Management`s Discussion and Analysis - page 8
9. The numbers in the table on page 9 called "Sales by Product" do
not add up to the annual sales figure provided in the top row of
the
table. Please advise or revise.
Business of Our Company - page 11
10. In comment 41 of our previous letter we asked you to provide
us
with supporting documents for a number of claims. This
information
was not included with your letter of response. Please provide the
information we requested when you file your next pre-effective
amendment.
11. We note your response to comment 46. However, disclosure
under
"Internet Sales" on page 14 states that your internet orders
average
"over $9000 per month in retail sales." This is inconsistent with
the information provided in the table on page 9. Please revise or
advise.
Legal Proceedings - page 15
12. We note that the drop in your sales appears to have occurred
at
the same time you terminated the distribution agreement that was
the
subject of the litigation. We note further that there is no
discussion in the prospectus of any relationship between the
termination of the agreement and the drop in your sales. Please
tell
us the basis for your belief that there is no connection between
the
two events. If you believe that there is a connection, we
anticipate
that you will discuss it in this document. We may have further
comment after reviewing your response.
Executive Compensation - page 17
13. Please revise your compensation table to include all of the
information specified in Item 402(b)(2) of Regulation S-B,
including
the dollar value of the stock options. Also see the instructions
to
Item 402(b).
14. Provide the Option Grants table specified in Item 402(c) and
the
Aggregated Option Exercise Table specified in Item 402(d) of
Regulation S-B.
Stock Option Plan - page 17
15. We are unable to locate the revisions that you indicate can be
found under this subheading in response to comment 49 in our
previous
letter. Please revise the disclosure to explain why, since the
shares underlying the options have been exercised and sold, the
related indebtedness to the company has not been paid. We may
have
additional comments.
16. The revised disclosure indicates that the company lowered the
exercise price of the option shares after they had been exercised.
Please tell us the legal basis for this action. We may have
additional comments.
17. Please tell us the legal and factual basis for the company`s
belief that the shares underlying the options which were exercised
and sold by Mr. Kravitz in the open market during 2003 and 2004
were
not restricted securities that required registration prior to
resale
in the open market. We may have additional comments.
Certain Relationships and Related Transactions
18. We note your response to comment 51. We also note that Mr.
Kravitz owes you more than $600,000 for options that were
exercised
but never paid for. Please revise the registration statement to
include all of the information specified in Item 404 of Regulation
S-
B regarding transactions with management. As we previously
requested.
This would include interest rates and the business purposes for
the
loans. We may have additional comments after we review this
information.
19. We note your response to comment 53. However, we are unable
to
locate any disclosure referencing the additional 500,000 shares
that
you were to issue to the plaintiffs if the registration statement
was
not filed by January 15, 2005. Since the registration statement
was
filed after that date, please revise your disclosure to reflect
the
issuance of the additional shares or explain to us why you have
not
issued them.
Notes to Financial Statements
Summary of Significant Accounting Policies - Advertising Cost
20. We acknowledge your response to our comment number 57
regarding
advertising cost being netted against certain customer`s
receivable
accounts. Based on your description of this activity, it appears
as
though your liabilities to specific customers are offset against
these customers` receivable to you. Tell us if and how you meet
all
criteria set forth in paragraph 5 of FIN 39.
Form 10-QSB for Period Ending December 31, 2004
Notes to Financial Statements
21. We acknowledge your response to our comment number 60 in your
official response letter dated March 22, 2005. We did not however
find additional or revised disclosures in your Form SB-2/A and
Form
10-QSB per our comment, therefore we reissue the same comment.
Refer
to our original comment and revise your disclosures, disclose your
standard credit terms, and why the allowance for doubtful accounts
remained unchanged.
22. In response to our comment number 60, you state that the
increase
in receivables is a result of sales to some larger customers with
credit terms extended beyond 90 days and to some new customers who
receive 120 day terms on the initial order. Disclose when and in
what period you recognized revenue related to these sales and when
the transactions took place.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
23. We acknowledge your response to our comment number 62 in your
response letter. We did not however find modifications in the 10-
QSB
as stated in the letter. As such, we reissue the same comment.
Please explain to us what you mean by the statement "The Company
has
also eliminated one-time burdens of legal, computer and other non-
recurring expenses." on page 13 of Form 10-QSB filed on February
1,
2005 and on page 8 of Form 10-QSB/A filed on March 23, 2005.
Expand
the disclosure to more fully discuss and quantify these costs.
Quantify each element of the decrease in operating expenses and
fully
explain why the expense decreased.
General
24. The above comments apply to Form SB-2/A, Form 10-KSB and Form
10-
QSB/A. Please revise all of them as appropriate.
* * * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* Should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* The action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* The company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
As appropriate, please amend your registration statement and
1934 Act reports in response to these comments. You may wish to
provide us with marked copies of the amendment to expedite our
review. Please furnish a cover letter with your amendment that
keys
your responses to our comments and provides any requested
supplemental information. Detailed cover letters greatly
facilitate
our review. Please file your cover letter on EDGAR under the form
type label CORRESP. Please understand that we may have additional
comments after reviewing your amendment and responses to our
comments.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
For questions regarding the financial statements, please
contact Christine Allen at (202) 824-5533 or Lisa Vanjoske at
(202)
942-1972. Please contact Mary Fraser at (202) 942-1864, John Krug
at
(202) 942-2979 or me at (202) 942-1840 with any other questions.
Sincerely,
Jeffrey P. Riedler
Assistant Director
Cc: Stewart A. Merkin, Esq.
Law Office of Stewart A. Merkin, P.A.
444 Brickell Avenue - Suite 300
Miami, Florida 33131
??
??
??
??
Mr. Paul Mitchell
Med Gen, Inc.
April 22, 2005
Page 7