UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
12,517,216 Shares outstanding as of August 9, 2002.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet - June 30, 2002 (Unaudited)
Statements of Operations - Three months and Nine months
ended
June 30, 2002 and 2001 (Unaudited).
Statements of Cash Flows - Nine months ended June 30, 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 Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
MED GEN, INC.
This Form 10-QSB for the period ended June 30, 2002, has been
amended from the original filing of August 10, 2002. During September
2002 the Company determined that it had incorrectly recorded
$400,000 of convertible debentures described in Note 6 as convertible
preferred stock. This amount has been reclassified to convertible
debentures in the accompanying financial statements. The adjustment
had no effect on the net loss or net loss per share for the periods
ended June 30, 2002.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Med Gen, Inc.
Balance Sheet
June 30, 2002
(Unaudited)
Restated
ASSETS
Current Assets
Cash and cash equivalents $ 264,521
Accounts receivable 690,508
Inventory 230,808
Officer advances 48,954
Other current assets 16,500
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Total Current Assets 1,251,291
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Property and Equipment, net 97,338
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Other Assets
Deposits 87,109
Due from affiliates 74,134
Other 11,725
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$ 1,521,597
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LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 438,028
Notes payable - officers 100,000
Notes payable 435,000
Convertible debentures 159,500
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Total Current Liabilities 1,132,528
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Convertible debentures 400,000
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Stockholders' (Deficit)
Preferred stock, $.001 par value, 5,000,000 shares
authorized:
Series A 8% cumulative, convertible, 1,500,000 shares
authorized -
Undesignated, 3,500,000 shares authorized -
Common stock, $.001 par value, 20,000,000
shares authorized, 12,417,216 shares
issued and outstanding 12,417
Paid in capital 4,000,133
Accumulated (deficit) (3,883,481)
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129,069
Receivable for common stock (130,000)
Treasury stock, at cost 20,000 shares (10,000)
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(10,931)
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$ 1,521,597
=============
See accompanying notes to financial statements.
4
Med Gen, Inc.
Statements of Operations
For the Three Months and Nine Months Ended June 30, 2002 and 2001
(Unaudited)
Restated
Three Months Nine Months
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2002 2001 2002 2001
---------- ---------- ---------- ----------
Net Sales $ 919,587 $ 845,026 $2,808,917 $1,612,357
Cost of Sales 348,806 336,965 993,320 555,101
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570,781 508,061 1,815,597 1,057,256
---------- ---------- ---------- ----------
Operating expenses:
Non cash stock compensation 284,875 - 518,867 -
Selling, general and administrative expenses 698,468 448,849 1,828,528 1,060,978
---------- ---------- ---------- ----------
983,343 448,849 2,347,395 1,060,978
(Loss) from operations (412,562) 59,212 (531,798) (3,722)
Other (income) expense:
Other (income) expenses - 7,928 (22,884) (2,810)
Interest expense 22,725 - 55,156 -
Non cash interest expense - - 210,000 -
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22,725 7,928 242,272 (2,810)
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Net income (loss) (435,287) 51,284 (774,070) (912)
========== ========== ========== ==========
Per share information - basic and fully diluted:
Weighted average shares outstanding 12,185,550 5,535,796 10,963,192 4,972,068
========== ========== ========== ==========
Net income (loss) per share $(0.04) $0.01 $(0.07) $(0.00)
========== ========== ========== ==========
See accompanying notes to financial statements.
5
Med Gen, Inc.
Statements of Cash Flows
For the Nine Months Ended June 30, 2002 and 2001
(Unaudited)
Restated
2002 2001
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Cash flows from operating activities:
Net cash (used in) operating activities $ (533,714) $ (391,371)
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Cash flows from investing activities:
Net cash (used in) investing activities (66,552) (34,732)
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Cash flows from financing activities:
Net cash provided by financing activities 856,800 452,073
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Net increase in cash 256,534 25,970
Beginning - cash and cash equivalents 7,987 27
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Ending - cash and cash equivalents $ 264,521 $ 25,997
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See accompanying notes to financial statements.
6
MED GEN, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 7). 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. During the quarter ended June 30, 2002 the
Company repaid $65,000 of the principal balance to the lender.
(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.
7
The Company's deferred tax asset of approximately $1,300,000 resulting
from net operating loss carryforwards aggregating approximately
$3,800,000 is fully offset by a valuation 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) Convertible Debentures
During February through April 2002 the Company issued $400,000
(including $350,000 which had been outstanding at March 31, 2002) of 8%
cumulative convertible debentures due in May 2004 for cash aggregating
$400,000. The debentures are convertible into common shares of the
Company 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 debenture into common stock at the rate
of $.10 per common share (election to convert).
The remaining 50% of the debenture may be redeemed by the Company for
cash or may be converted into the number of common shares of the Company
determined by dividing the balance of the value of the debenture 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 debentures automatically convert into common
stock as follows:
50% of the value of the debentures converts into common stock at the
rate of $.10 per common share and the remaining 50% of the value of the
debentures converts into the number of common shares determined by
dividing the balance of the value of the debentures 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 additional interest on the
debentures at the time of the conversion.
(7) Stockholders' (Deficit)
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 June 30, 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 June 30, 2002.
8
During January 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. These shares were issued during
May 2002.
During the quarter ended March 31, 2002 the Company agreed to issue
800,000 shares of common stock to officers for services. The Company
charged the fair value of these shares of $198,000 to operations during
the period. These shares have not yet been issued.
During the period from October 1, 2001 to March 31, 2002 the Company
collected $202,000 of receivables for common stock.
During April 2002 the Company issued 1,000,000 shares of common stock to
officers pursuant to the exercise of stock options. The Company has
recorded the amount due from these officers of $130,000 as a receivable
for common stock.
During May 2002 the Company issued 1,000,000 shares of common stock to
officers and a consultant for services. The Company charged the fair
value of these shares of $301,000 to operations during the period. In
addition, during May 2002 the Company issued 40,000 shares of common
stock for cash aggregating $4,000. The difference between the price paid
for the shares and their fair market value of $4,000 has been charged to
operations during the period.
Stock-based Compensation
During the period ended June 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 $ (774,070)
Pro forma $(1,054,070)
Basic and diluted (loss) per share
As reported $(.07)
Pro forma $(.10)
9
A summary of stock option activity is as follows:
Number Weighted- Weighted-
of average exercise average
shares price fair value
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Balance at September 30, 2001 4,862,850
Granted 2,050,000 $.23 $.17
Exercised 1,000,000 $.13 $.13
Forfeited - - -
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Balance at June 30, 2002 5,912,850
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(8) Concentrations
During the period ended June 30, 2002 the Company derived 14%, 16% and
42% of its total sales from three major customers.
(9) Correction Of An Error
During September 2002 the Company determined that it had incorrectly
recorded $400,000 of convertible debentures described in Note 6 as
convertible preferred stock. This amount has been reclassified to
convertible debentures in the accompanying financial statements. The
adjustment had no effect on the net loss or net loss per share for the
periods ended June 30, 2002.
(10) Subsequent Event
On July 31, 2002 the Company retired convertible debentures
aggregating $159,500 for cash.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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Three months ended June 30, 2002
Compared with three months ended June 30, 2001
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For the 2002 third fiscal quarter ended June 30, 2002 ("Q-3"), Sales
increased 9% to $919,587 from $845,026 during 2001. Gross Profit for
the third fiscal quarter was $570,781 versus $508,061 for the year ago
quarter, an increase of 11%. Gross Profit Margins increased to 62% of
Sales in the quarter versus 60% for the year ago quarter.
Operating expenses increased to $698,468 for the quarter ended June
30, 2002 versus $448,849 during 2001.
Operating losses were $412,562 versus a year ago quarterly profit of
$59,212. For the third fiscal quarter, the Company reported a loss of
$0.04 per share (versus a profit of $0.01 per share in the 2001
quarter). The loss for the 2002 quarter reflects $284,875 in a non-
cash expense in connection with stock issued in lieu of cash
compensation.
Nine months ended June 30, 2002
Compared with nine months ended June 30, 2001
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For the first nine months of fiscal year 2002 ended June 30, 2002
("First Nine Months"), Sales increased 75% to $2,808,917 from
$1,612,357 in 2001. Gross profit for the First Nine Months was
$1,815,597 versus $1,057,256 for the year ago first nine months, an
increase of 71%. Gross Profit Margins decreased to 65% of Sales in
the First Nine Months versus 66% for the year ago first nine months.
Operating expenses exclusive of non-cash stock compensation increased
95% to $1,828,528 for the first nine months. The increase in
operating expenses for the quarter and the nine months was related to
the following:
2002 2001 2002 2001
Nine Months Nine Months Three Months Three Months
----------- ----------- ------------ ------------
Advertising $103,285 $ 25,264 $84,957 $ 9,811
Internet costs $ 26,334 $ 5,304 $13,448 $ 3,634
Insurance $ 68,367 $ 53,011 $37,012 $ 8,960
Professional/Legal $212,385 $ 68,978 $25,407 $57,580
Operating losses were $531,798 for the First Nine Months of 2002
versus $3,722 for 2001.
For the fiscal First Nine Months, the Company reported a loss of $0.07
per share (versus a profit of $0.00 per share in the year earlier
period). This per share loss reflects charging $518,867 in a non-cash
expense in connection with stock issued in lieu of cash compensation.
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Forward-Looking Statements
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This form 10-QSB contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created hereby.
Investors are cautioned that all forward-looking statements involve
risks and uncertainty, including without limitation, the Company's
future cash resources and liquidity. Although the Company believes
that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-
looking statements included in this form 10-QSB will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company
or any other person that the objectives and plans of the Company will
be achieved.
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.
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: September 6, 2002
By:__/s/Paul B. Kravitz_____
Paul B. Kravitz
Chief Executive Officer
CERTIFICATIONS
I, Paul Kravitz, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Med
Gen, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
Date: September 6, 2002
By: /s/ Paul Kravitz
----------------------------
Paul Kravitz
Chief Executive Officer
I, Jack Chien, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Med
Gen, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
Date: September 6, 2002
By: /s/ Jack Chien
---------------------------
Jack Chien
Chief Financial Officer, and Principal Accounting Officer
12