UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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Commission file number 000-29171
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Med Gen Inc.
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[Exact name of small business issuer as specified in its charter]
Nevada 65-0703559
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(State of incorporation) (IRS Employer Identification No.)
7284 W. Palmetto Park Road, Suite 106, Boca Raton, FL 33433
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(Address of principal executive offices)
(561) 750-1100
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.001 per share
5,199,716 Shares outstanding as of March 31, 2001
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MED GEN, INC.
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CONDENSED BALANCE SHEET
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MARCH 31, 2001
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ASSETS
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CURRENT ASSETS
Cash $ 32,042
Accounts receivable, net 253,284
Miscellaneous receivables 38,250
Inventory 137,104
Prepaid expenses 55,099
Officer advances 6,867
Due from related parties 163,073
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Total current assets 685,719
FURNITURE AND EQUIPMENT, net 40,952
INTANGIBLE ASSETS, net 12,846
SECURITY DEPOSITS 81,370
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TOTAL ASSETS $ 820,887
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Accounts payable and accrued expenses $ 412,193
Note payable 45,000
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Total current liabilities 457,193
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value
5,000,000 shares authorized, -0-
shares issued and outstanding -
Common stock, $.001 par value
20,000,000 shares authorized,
5,199,716 issued and outstanding 5,200
Additional paid-in capital 2,005,233
Accumulated deficit (1,646,739)
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Total stockholders' equity 363,694
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 820,887
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Read the accompanying notes to the financial statements.
(2)
MED GEN, INC.
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CONDENSED STATEMENTS OF INCOME
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FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2001 AND 2000
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THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
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NET SALES $ 362,173 $ 377,909 $ 767,331 $ 885,325
COST OF GOODS SOLD 90,803 86,382 218,136 248,887
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GROSS PROFIT 271,370 291,527 549,195 636,438
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OPERATING EXPENSES
General and administrative 344,671 150,389 534,687 350,740
Selling expenses 21,625 109,832 77,442 218,283
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Total operating 366,296 260,221 612,129 569,023
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INCOME (LOSS) FROM OPERATIONS (94,926) 31,306 (62,934) 67,415
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OTHER INCOME (EXPENSE) 13,373 ( 1,236) 10,738 ( 1,409)
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NET INCOME (LOSS) BEFORE
INCOME TAX EXPENSE (81,553) 30,070 (52,196) 66,006
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INCOME TAX EXPENSE - - - -
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NET INCOME (LOSS) (81,553) 30,070 (52,196) 66,006
ACCUMULATED DEFICIT
BEGINNING OF PERIOD (1,565,186) (1,377,292) (1,594,543) (1,413,228)
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ACCUMULATED DEFICIT
END OF PERIOD $(1,646,739) $(1,347,222) $(1,646,739) $(1,347,222)
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Read the accompanying notes to the financial statements.
(3)
MED GEN, INC.
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CONDENSED STATEMENTS OF CASH FLOWS
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FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
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2001 2000
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NET CASH FLOWS FROM OPERATING
ACTIVITIES $ 17,721 $ 65,974
NET CASH FLOWS FROM INVESTING
ACTIVITIES ( 48,956) ( 30,036)
NET CASH FLOWS FROM FINANCING
ACTIVITIES 63,250 40,731
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NET INCREASE IN CASH 32,015 76,669
CASH - BEGINNING OF PERIOD 27 -
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CASH - END OF PERIOD $ 32,042 $ 76,669
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Read the accompanying notes to financial statements.
(4)
MED GEN, INC.
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NOTES TO FINANCIAL STATEMENTS
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FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
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NOTE 1. BASIS OF PRESENTATION
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The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and item 310(b) of Regulation S-B. They do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. For further information, refer to
the financial statements of the Company as of September 30, 2000 contained in
the Company's Form 10-SB.
NOTE 2. CAPITAL STOCK
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On January 4, 2001, the Company issued an aggregate of 470,000 restricted
shares of its common stock to certain employees and non-employees as
compensation for present and future services. Since these shares are subject
to certain restrictions on ownership and transferability, they were issued at
a discount from the prevailing market price on that date.
The Company filed a Form S-8 with the Securities and Exchange Commission on
January 19, 2001 to register 1,500,000 shares of common stock for issuance
upon the exercise of options under the Company's Non-Qualified Stock Option
Plan, adopted January 10, 2001. In addition, the Company registered an
additional 1,555,000 shares for issuance under various Consulting Agreements
with non-employees.
NOTE 3. STOCK OPTIONS
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Employees and Officers
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Options to purchase 1,930,000 shares of the Company's common stock at
exercise prices ranging from $.25 per share to $1.50 per share have been
granted to certain of the Company's officers and key employees during the
three months ended March 31, 2001.
(5)
MED GEN, INC.
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NOTES TO FINANCIAL STATEMENTS
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FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
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NOTE 3. STOCK OPTIONS - (Continued)
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Employees and Officers - (Continued)
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The Company accounts for stock-based compensation for employees using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No.25, "Accounting for Stock Issued to Employees". Compensation cost for
stock options, if any, is measured as the excess of the quoted market price
of the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock. Included in the financial statements at March 31,
2001 is $38,700 of compensation cost related to these options.
Had compensation expense for the stock option plan been determined based on
fair value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for
Stock Based Compensation," the Company's net loss would have been increased
by $829,800 for the three and six months ended March 31, 2001. The fair value
of each option is estimated on the date of grant using the Black Scholes
option pricing model with the following assumptions:
Risk free interest rate 5.6%
Expected life (years) 3
Expected volatility 12
Expected dividends None
Consultants
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On January 10, 2001, the Company entered into various Consulting Agreements
with non-employees. Under these agreements, options to purchase 1,535,000
shares at exercise prices ranging from $.16 per share to $1.50 per share were
granted in payment of legal and consulting services. The options expire
January, 2004. The Company has adopted Statement of Financial Standards
No. 123, "Accounting for Stock-Based Compensation". These options were valued
at $51,000, using the fair value of the consideration of the services
received. During March, 2001, 285,000 options were exercised for $68,250.
(6)
MED GEN, INC.
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NOTES TO FINANCIAL STATEMENTS
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FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
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NOTE 3. STOCK OPTIONS - (Continued)
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A summary of option transactions during the quarter ended March 31, 2001 is
as follows:
Number of Exercise Price
Shares Range
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Outstanding as of
January 1, 2001 125,000 $ .45
Granted 3,465,000 $ .16 - $1.50
Exercised (285,000) $ .16 - $ .50
Forfeited -
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Options outstanding
as of March 31, 2001 3,305,000
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Options exercisable
to March 31, 2001 3,305,000
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NOTE 4. LETTER OF INTENT
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On January 17, 2001, the Company signed a letter of intent to acquire a
French corporation. After a due diligence trip to France, management decided
not to pursue the merger and no definitive agreement was entered into.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Form 10-QSB contains forward-looking statements which are made pursuant
to the safe harbor provisions of the Securities Litigation Reform Act of 1995,
and which are subject to the risks and uncertainties which could cause actual
results to differ materially from those discussed in the forward-looking
statements and from historical results of operations. Among the risks and
uncertainties which could cause such a difference, are those relating to the
Company's reliance upon suppliers, dependence upon key personnel, its ability
to manage growth, the impact of economic conditions generally and in the
nutrition and healthy lifestyle industries in particular, product demand,
market competition, risk inherent in the Company's operations and other
unknown factors. Further information is contained in the Company's Form 10-KSB
for the fiscal year ended September 30, 2000, as filed with the SEC.
(7)
RESULTS OF OPERATIONS
Three months ended March 31, 2001 compared to three months ended March 31,
2000.
For the second fiscal quarter ended March 31, 2001, net sales decreased four
percent to $362,173 from $377,909 in the comparable year ago quarter. This
decrease in sales was primarily the result of the Company's continued shift
from Infomercial and direct sales towards distribution into retail stores. The
Company received a record number of orders for its SNORenz product in March,
for shipment in April and May, and used considerable time and resources to
develop new packaging, labels and bottle sizes for distribution into Wal-Mart,
K-Mart and Walgreens retail locations, which received initial shipments in
April.
Gross profit was $271,370 in the current quarter against $291,527 a year ago
with gross profit margins of 75 versus 77 percent, respectively. Total
operating expenses increased to $336,296 from $260,221 in the year ago
quarter. Included in the operating expenses and giving rise to this quarter's
loss were non-cash expense entries of $89,700 relating to the issuance of
stock options to employees and consultants of the Company.
The loss from operations came to $94,926, but after adjusting for other income
of $13,373 the Company is reporting a net loss in the current quarter of
$81,553 versus net income in the year ago quarter of $30,070. The Company
anticipates that it will report a substantial increase in sales and profits
in its third fiscal quarter due to increased sales in the domestic market,
especially from mass retailers, and from continued expansion into overseas
markets.
LIQUIDITY AND CAPITAL RESOURCES
Cash on hand at the end of the current quarter was $32,042 versus $76,669 at
the end of March 2000. The Company has utilized many of the financial
resources at its disposal to purchase the necessary raw materials to meet
product shipments in April and May. Accounts receivable at the end of April
2001 exceeded $580,000 and sales for April were approximately $400,000. In
addition, the Company received proceeds of $68,250 in March, from the exercise
of stock options issued to consultants, which supplemented working capital
requirements. The Company feels it has sufficient cash resources, receivables
and cash flow to provide for all general corporate operations in the
foreseeable future.
(8)
SIGNATURES
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In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized
Med Gen Inc.
(Registrant)
Date: May 14, 2001 By: ______/s/Paul B. Kravitz____________
Paul B. Kravitz
Chief Executive Officer
Date: May 14, 2001 By: _____/s/Paul s. Mitchell____________
Paul S. Mitchell
President
(9)