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, 2002
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Commission file number 000-29171
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
10,392,216 Shares outstanding as of March 31, 2002.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet - March 31, 2002 (Unaudited)
Statements of Operations - Three months and Six months ended
March 31, 2002 and 2001 (Unaudited).
Statements of Cash Flows - Six months ended March 31, 2002
and 2001 (Unaudited).
Notes to Financial Statements (Unaudited).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Med Gen, Inc.
Balance Sheet
March 31, 2002
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 402,815
Accounts receivable 762,146
Inventory 162,058
Officer advances 93,494
Other current assets 24,536
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Total Current Assets 1,445,049
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Property and Equipment, net 95,467
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Other Assets
Deposits 87,109
Due from affiliates 60,134
Other 12,125
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$1,699,884
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 454,903
Notes payable - officers 100,000
Notes payable 500,000
Convertible debentures 159,500
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Total Current Liabilities 1,214,403
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Stockholders' Equity
Preferred stock, $.001 par value, 5,000,000 shares
authorized:
Series A 8% cumulative, convertible, 1,500,000 shares
authorized, 350,000 shares issued and outstanding 350,000
Undesignated, 3,500,000 shares authorized -
Common stock, $.001 par value, 20,000,000
shares authorized, 10,392,216 shares
issued and outstanding 10,392
Paid in capital 3,583,283
Accumulated (deficit) (3,448,194)
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495,481
Treasury stock, at cost 20,000 shares (10,000)
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485,481
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$1,699,884
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See accompanying notes to the financial statements.
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Med Gen, Inc.
Statements of Operations
For the Three Months and Six Months Ended March 31, 2002 and 2001
(Unaudited)
Three Months Six Months
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2002 2001 2002 2001
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Net Sales $ 936,451 $ 362,173 $ 1,889,330 $ 767,331
Cost of Sales 373,482 90,803 644,514 218,136
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562,969 271,370 1,244,816 549,195
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Operating expenses:
Non cash stock compensation 233,992 - 233,992 -
Selling, general and
administrative expenses 446,030 366,296 1,130,060 612,129
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680,022 366,296 1,364,052 612,129
(Loss) from operations (117,053) (94,926) (119,236) (62,934)
Other (income) expense:
Other (income) expenses - (13,373) (22,884) (10,738)
Interest expense 13,146 - 30,589 -
Non cash interest expense - - 210,000 -
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13,146 (13,373) 217,705 (10,738)
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Net (loss) (130,199) (81,553) (336,941) (52,196)
Preferred dividends 1,842 - 1,842 -
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Net (loss) available to common
shareholders $ (132,041) $ (81,553) $ (338,783) $ (52,196)
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Per share information - basic
and fully diluted:
Weighted average shares
outstanding 10,392,216 5,009,716 10,350,108 4,725,678
========== =========== =========== ==========
Net (loss) per share $ (0.01) $ (0.02) $ (0.03) $ (0.01)
========== =========== =========== ==========
See accompanying notes to the financial statements.
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Med Gen, Inc.
Statements of Cash Flows
For the Six Months Ended March 31, 2002 and 2001
(Unaudited)
2002 2001
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Cash flows from operating activities:
Net cash provided by (used in) operating
activities $ (415,391) $ 17,721
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Cash flows from investing activities:
Net cash (used in) investing activities (57,581) (48,956)
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Cash flows from financing activities:
Net cash provided by financing activities 867,800 63,250
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Net increase in cash 394,828 32,015
Beginning - cash and cash equivalents 7,987 27
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Ending - cash and cash equivalents $ 402,815 $ 32,042
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See accompanying notes to the financial statements.
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MED GEN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
(1) Basis Of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles (GAAP) for interim financial information and Item
310(b) of Regulation S-B. They do not include all of the
information and footnotes required by GAAP 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, 2001 and for the two years
then ended, including notes thereto included in the Company's
Form 10-KSB.
(2) Earnings Per Share
The Company calculates net income (loss) per share as required by
Statement of Financial Accounting Standards (SFAS) 128, "Earnings
per Share." Basic earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted earnings (loss)
per share is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common
stock equivalents outstanding. During periods when anti-dilutive
commons stock equivalents are not considered in the computation.
(3) Inventory
Inventory is stated at the lower of cost, determined on a first
in, first out basis, or market value. Inventory consists
principally of finished goods and packaging materials.
(4) Notes Payable
During October 2001 the Company refinanced certain loans into a
$350,000 note payable due during January 2002 with interest at
7.5% per annum. As additional consideration for the loan, the
Company issued 1,500,000 shares of its common stock (see Note 6).
During March 2002 the Company refinanced this obligation into a
$500,000 note payable. This note bears interest at 8% per annum,
requires interest payments of $3,333 per month and is due on
March 23, 2003.
(5) Income Taxes
The Company accounts for income taxes under SFAS 109, "Accounting
for Income Taxes", which requires use of the liability method.
SFAS 109 provides that deferred tax assets and liabilities are
recorded based on the differences between the tax bases of assets
and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences.
Deferred tax assets and liabilities at the end of each period are
determined using the currently enacted tax rates applied to
taxable income in the periods in which the deferred tax assets
and liabilities are expected to be settled, or realized.
The Company's deferred tax asset of approximately $1,100,000
resulting from net operating loss carryforwards aggregating
approximately $3,400,000 is fully offset by a valuation
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allowance. The Company has recorded a valuation allowance to
state its deferred tax assets at estimated net realizable value
due to the uncertainty related to realization of these assets
through future taxable income.
The provision for income taxes differs from the amount computed
by applying the statutory rate of 34% to income before income
taxes due to the effect of the net operating loss.
(6) Stockholders' Equity
Common stock
During October 2001 the Company issued 735,000 shares of common
stock for consideration aggregating $147,000, pursuant to the
exercise of stock options by a consultant.
During October 2001 the Company issued 1,500,000 shares of common
stock as partial consideration for a loan (see Note 4). The
Company charged the fair value of these shares of $210,000 to
interest expense during the period ended March 31, 2002.
During January 2002 the Company issued 83,300 shares of common
stock in exchange for services. The Company charged the fair
value of theses shares of $19,992 to operations during the period
ended March 31, 2002.
During the period ended March 31, 2002 the Company agreed to
issue 100,000 shares of common stock for cash aggregating
$10,000. The difference between the price paid for the shares and
their fair market value of $16,000 has been charged to operations
during the period.
During the period ended March 31, 2002 the Company agreed to
issue 800,000 shares of common stock for services. The Company
charged the fair value of these shares of $198,000 to operations
during the period.
During the period ended March 31, 2002 the Company collected
$202,000 of receivables for common stock.
Preferred stock
During February and March 2002 the Company issued 350,000 shares
of 8% cumulative convertible preferred stock for cash aggregating
$350,000. The preferred shares are convertible into common shares
of the Company at the option of the holder as follows:
At any time after the Company's common stock price exceeds $3
per share for a period of ten consecutive trading days the holder
may convert 50% of the value of the preferred shares held into
common stock at the rate of $.10 per common share (election to
convert).
The remaining 50% of the preferred shares will be converted
ito the number of common shares of the Company determined by
dividing the balance of the value of the preferred shares held by
the common stock price at the time of the election to convert.
Notwithstanding the above, on the 25th monthly anniversary of the
date of the investments the preferred stock automatically
converts into common stock as follows:
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50% of the value of the preferred shares held converts into
common stock at the rate of $.10 per common share and the
remaining 50% of the value of the preferred shares held converts
into the number of common shares determined by dividing the
balance of the value of the preferred shares held by the common
stock price at the 25th monthly anniversary.
The shares of common stock to be issued upon conversion are
subject to certain registration rights.
Any difference between the fair market value of the common shares
and the conversion price shall be recorded as an additional
dividend on the preferred stock at the time of the conversion.
Stock-based Compensation
During the period ended March 31, 2002 the Company issued options
to purchase 2,000,000 shares of common stock to officers and
50,000 shares of common stock to non employees at $.23 per share.
SFAS 123 "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and
earnings per share as if compensation cost for the Company's
stock option plans had been determined in accordance with the
fair value based method prescribed in SFAS 123. The fair value of
the option grants is estimated on the date of grant utilizing the
Black-Scholes option pricing model. These results may not be
representative of those to be expected in future years.
Under the provisions of SFAS 123, the Company's net income (loss)
and earnings (loss) per share would have been reduced (increased)
to the pro forma amounts indicated below:
Net (loss)
As reported $(338,783)
Pro forma $(518,783)
Basic and diluted (loss) per share
As reported $(.03)
Pro forma $(.05)
(7) Concentrations
During the period ended March 31, 2002 the Company derived 14%,
15% and 39% of its total sales from three major customers.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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RESULTS of OPERATIONS
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Three months ended March 31, 2002
Compared with three months ended March 31, 2001
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For the 2002 second fiscal quarter ended March 31, 2002 ("Q-2"), Sales
increased 159% to $936,451. Gross Profit for the second fiscal quarter
was $562,969 versus $271,370 for the year ago quarter, an increase of
108%. Gross Profit Margins decreased to 60% of Sales in the quarter
versus 75% for the year ago quarter, reflecting the initiation of
overseas Sales in the current quarter (versus zero overseas Sales in
the year ago quarter).
While overseas Sales carry a lower margin of Gross Profit, overseas
distributors pay-in-advance for their purchase orders.eliminating
completely any accounts receivable concerns or foreign exchange risk.
Operating expenses increased 22% to $446,030 for the second fiscal
quarter. Reflecting the implementation of internal operating cost
controls initiated last fiscal year, operating expenses represented
only 48% of Q-2 Sales versus a 101% proportion of Q-2 Sales in the
year ago quarter.
Operating Income was $116,452 for the second fiscal quarter. This
compares favorably with an Operating Loss of $94,926 in the year ago
quarter. For the second fiscal quarter, the Company reported a loss of
$0.01 per share (versus a loss of $0.02 per share in the year earlier
quarter). This loss reflects $233,992 in a non-cash expense in
connection with stock issued in lieu of cash compensation.
Six months ended March 31, 2002
Compared with six months ended March 31, 2001
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For the first six months of fiscal year 2002 ended March 31, 2002
("First Half"), Sales increased 146% to $1,889,330. Gross Profit for
the fiscal First Half was $1,244,816 versus $549,195 for the year ago
first half, an increase of 127%. Gross Profit Margins decreased to 66%
of Sales in the First Half versus 72% for the year ago first half, due
to the initiation of overseas Sales (versus zero in overseas Sales in
the year ago period).
While overseas Sales carry a lower margin of Gross Profit, overseas
distributors pay-in-advance for their purchase orders.eliminating
completely any accounts receivable concerns or foreign exchange risk.
Operating expenses increased 85% to $1,130,060 for the First Half.
Reflecting the implementation of internal operating cost controls
initiated last fiscal year, operating expenses represented 60% of
First Half Sales versus 80% of first half Sales in the year ago
period.
Operating Income (Core Income) was $114,756 for the First Half. This
compares favorably with an Operating Loss of $62,934 in the year ago
period. For the fiscal First Half, the Company reported a loss of
$0.03 per share (versus a loss of $0.01 per share in the year earlier
period). This per share loss reflects charging $233,992 in a non-cash
expense in connection with stock issued in lieu of cash compensation.
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LIQUIDITY and CAPITAL RESOURCES
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Cash on hand increased by $394,918 at the end of the fiscal First Half
ended March 31, 2002 versus September 30, 2001.
Current Assets increased to $1,445,049 as of March 31, 2002 and were
$230,646 greater than Current Liabilities (which stood at $1,214,403
on that same date). This compares with Current Assets of $820,560 at
September 30, 2001 and were $312,511 less than Current Liabilities
(which stood at $1,133,071 at that same date).
Stockholders' Equity improved to $485,481 at the end of the fiscal
First Half, or $0.05 in Tangible Book Value Share versus a
Stockholders' Deficit of $163,477 at September 30, 2001, an increase
of $648,958.
The Company believes that it has sufficient existing Cash Resources,
Accounts Receivables and Internal Cash Flow to provide for all general
corporate operations in the foreseeable future.
PART II
Item 1. LEGAL PROCEEDINGS
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Not applicable.
Item 2. CHANGE IN SECURITIES
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Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
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Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not Applicable
Item 5. OTHER INFORMATION
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Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) There are no exhibits required to be filed for the
period covered by this Report.
(b) There were no reports filed on Form 8-K for the
period covered by this Report.
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SIGNATURES
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, 2002 By:____/s/Paul B. Kravitz________
Paul B. Kravitz
Chief Executive Officer
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