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 December 31, 2003
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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 207, 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
4,192,345 Shares outstanding as of December 31, 2003. The Company's
stock trades on the OTCBB under the symbol "MDGN".
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 - December 31, 2003 (Unaudited)
Statements of Operations - Three months ended December 31, 2003
and 2002 (Unaudited).
Statements of Cash Flows - Three months ended December 31, 2003
and 2002 (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
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MED GEN, INC.
This Form 10-QSB is for the period ended December 31, 2003.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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Med Gen, Inc.
Balance Sheet
December 31, 2003
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 35,315
Accounts receivable 290,423
Inventory 208,753
Other current assets 10,700
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Total Current Assets 545,191
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Property and Equipment, net 80,582
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Other Assets
Deposits 62,421
Assets held for sale 43,750
Other 11,442
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117,613
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$ 743,386
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LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 250,132
Notes payable - related parties 951,815
Convertible debentures 380,000
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Total Current Liabilities 1,581,947
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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, $.001 par value, 20,000,000
shares authorized, 4,192,345 shares
issued and outstanding 4,193
Paid in capital 8,675,567
Accumulated (deficit) (5,497,449)
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3,182,311
Receivable for common stock (4,020,872)
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(838,561)
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$ 743,386
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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 Ended December 31, 2002 and 2003
(Unaudited)
2002 2003
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Net Sales $ 554,678 $ 267,264
Cost of Sales 106,819 104,106
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Gross profit 447,859 163,158
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Operating expenses:
Non-cash stock compensation - 87,000
Selling, general and administrative expenses 355,932 485,077
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355,932 572,077
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Income (loss) from operations 91,927 (408,919)
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Other (income) expense:
Interest expense 34,169 48,740
Other expenses - 6,250
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34,169 54,990
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Income (loss) before income taxes 57,758 (463,909)
Income taxes - -
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Net income (loss) $ 57,758 $ (463,909)
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Per share information - basic and fully diluted:
Weighted average shares outstanding 585,860 3,983,655
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Net income (loss) per share $ 0.10 $ (0.12)
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See accompanying notes to the financial statements.
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Med Gen, Inc.
Statements of Cash Flows
For the Three Months Ended December 31, 2002 and 2003
(Unaudited)
2002 2003
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Cash flows from operating activities:
Net cash (used in) operating activities $ (133,021) $ (225,079)
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Cash flows from investing activities:
Net cash (used in) investing activities (2,808) -
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Cash flows from financing activities:
Borrowing (repayment) of related party notes 100,000 (200,000)
Proceeds from option exercise - 369,603
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Net cash provided by financing activities 100,000 169,603
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Net increase (decrease) in cash (35,829) (55,476)
Beginning - cash and cash equivalents 49,563 90,791
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Ending - cash and cash equivalents $ 13,734 $ 35,315
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MED GEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
(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, 2003 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 - Related Parties
During March 2002 the Company repaid $200,000 in notes payable to
related parties.
(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 $1,600,000
resulting from net operating loss carryforwards aggregating
approximately $4,800,000 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.
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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 - long-term
During February through April 2002 the Company issued $400,000 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.
During December 2003 a holder of the convertible debentures
converted a $50,000 debenture into 27,205 shares of common stock.
(7) Stockholders' (Deficit)
During November 2003 the Company affected a four to one forward
stock split. All share and per share amounts have been restated
to give effect to this split.
From October 1, 2003 to December 31, 2003 officers exercised
735,000 of the options discussed in Note 6 and the received
2,940,000 common shares in the cashless exercise. The aggregate
value for the shares of $3,638,250 is due from these officers at
such time as they sells the shares and has been recorded as a
receivable for common stock.
From October 1, 2003 to December 31, 2003 $369,603 had been paid
related to the option exercises
During January 2004 the Company repriced options held by officers
from $1.24 to $.44 which was the fair market value of the common
shares underlying the option on the repricing date.
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During November 2004 the Company issued 186,915 options to
purchase common stock at an exercise price of $1.34 per share to
a consultant. The Company charged $87,000 to operations related
to the issuance of these options.
During November 2003 the Company entered into a term sheet with
an investment banker for a proposed offering of a minimum of
$600,000 and a maximum of $800,000 in 5% convertible preferred
securities pursuant to Regulation D. The preferred shares are
convertible into common shares at $1.00 per share. In addition,
each ten shares of preferred stock entitles the purchaser to
receive 2 three year warrants to purchase common shares of the
Company at 110% of the conversion price at the time of closing.
The Company has agreed to pay a fee to the investment banker of
10% of the cash raised and warrants to purchase shares of common
stock equal to 20% of the common shares which may be issued in
the proposed offering at an exercise price of 110% of the
conversion price at the time of closing. All shares and warrants
carry certain registration rights.
(8) Concentrations
During the period ended December 31, 2002 the Company derived 52%
of its total sales from a single customer and during the period
ended December 31, 2003 the Company derived 29% and 21% of its
sales from two customers.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Three months ended December 31, 2003
Compared with three months ended December 31, 2002
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GENERAL
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The Company is now headquartered at 7284 W. Palmetto Park Rd., Suite
207, Boca Raton, Florida 33433 since January 1,2004. The Company has
downsized its headquarters from 4500 sq, ft. to 2200 sq. ft. in an
effort to decrease operating expenses. It does not foresee any need to
further expand its 2200 sq.ft. Corporate facility. The Company has
elected to outsource the manufacturing of all its products at this time.
Results of Operations
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For the 2003 first fiscal quarter ended December 31, 2003, Sales
decreased 48.18% to $267,264. This decrease was due to a lack of
advertising budget to compete with other products in the same marketplace
Gross profit for the first quarter was $163,158 versus $447,859 for the
year ago quarter, a decrease of 63.57%. The decrease was due to a one-time
"gravity fed" display ordered by Walmart in the first quarter, a year ago.
Gross profit margins for the quarter decreased to 61.04% of sales down
from 80.74% in the previous year ago quarter.
Operating expenses (selling, general and administrative expenses) increased
to $485,077 from $355,932, a increase of 36.63%. The increase is due to
several factors including, increased legal fees and consultants fees.
Operating loss was $408,919 as opposed to a gain of $91,927 in the prior
year's quarter.
Interest expense increased from $34,169 in the year ago quarter to $48,740.
This due to the increase in borrowings for the period.
For the first fiscal quarter the company reported a loss of $.12 per
share versus a gain of $.10 per share in the year ago quarter.
Liquidity and Capital Resources
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Cash on hand at December 31, 2003 was $35,315 and the Company had a working
capital deficit of $838,561 at December 31, 2003.
Net cash used in operating activities was $225,079 during the quarter ended
December 31, 2003.
Net cash used in investing activities was $-0- during the quarter ended
December 31, 2003.
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Net cash provided by financing activities was $369,603 during the quarter
ended December 31, 2003, which consisted of proceeds from the sale of
management options net of $200,000 repayments of related party loans.
The Company expects to introduce at least one new product into retail
stores and its SnorEnzr Brand continues to grow in popularity, especially
in the international markets. Further, the Company has affected a 5% price
increase effective March 1st 2003. The Company has also eliminated
one-time burdens of legal, computer and other non-recurring expenses. The
Company has sufficient cash resources, receivables and cash flow to provide
for all general corporate operations in the foreseeable future.
CRITICAL ACCOUNTING POLICIES
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Our discussion of results of operations and financial condition relies on
our consolidated financial statements that are prepared based on certain
critical accounting policies that require management to make judgments and
estimates that are subject to varying degrees of uncertainty. We believe
that investors need to be aware of these policies and how they impact our
financial reporting to gain a more complete understanding of our financial
statements as a whole, as well as our related discussion and analysis
presented herein. While we believe that these accounting policies are
grounded on sound measurement criteria, actual future events can and often do
result in outcomes that can be materially different from these estimates or
forecasts. The accounting policies and related risks described in the
notes to our financial statements for the year ended September 30, 2003
are those that depend most heavily on these judgments and estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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Recently issued accounting pronouncements and their effect on us are
discussed inn the notes to the financial statements in our September 30,
2002 audited financial statements.
FORWARD LOOKING STATEMENTS
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When used throughout in this form 10QSB filing, the words "believe",
"should", "would", and similar expressions that are not historical are
intended to identify forward-looking statements that involve risks and
uncertainties. Such statements include, without limitation, expectations
with respect to the results for the next fiscal year, the Company's
beliefs and its views about the long term future of the industry and the
Company, its suppliers or its strategic business partners. In addition to
factors that may be described in the Company's other Securities and
Exchange Commission ("SEC") filings, unforeseen circumstances or events
could cause the Company's financial performance to differ materially from
that expressed in any forward-looking statements made by, or on behalf
of, the Company. The Company does not undertake any responsibility t
update the forward-looking statements contained in this Form 10QSB filing.
Item 3. Controls & Procedures
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in
the Company's Exchange Acts reports is recorded, processed and
summarized and is reported within the time periods specified in
the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure
control procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
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PART II
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Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGE IN SECURITIES
Not Applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 31.1 Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002,
promulgated under the Securities Exchange Act of
1934, as amended
31.2 Certification of Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350, as adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) There were no reports filed on Form 8-K forthe 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: February 13, 2004
By:_______/s/Paul B. Kravitz_____
Paul B. Kravitz
Chief Executive Officer
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