UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] 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, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
for the transition period from ________________ to ______________
Commission file number 000-29171
MED GEN, INC.
-----------------------------------------------------------------
[Exact name of registrant as specified in its charter]
Nevada 65-0703559
- ------------------------ -------------------------
(State of incorporation) (IRS Employer
Identification No.)
7284 W. Palmetto Park Road, Suite 207, Boca Raton, FL 33433
-------------------------------------------------------------
(Address of principal executive offices)
(561) 750-1100
-------------------------
(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 by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12B-2). Yes [ ] No [x ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x ]
As of December 31, 2005, 8,706,727 shares of common stock, .001
par value per share, were outstanding.
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet - December 31, 2005 (Unaudited)
Statements of Operations - Three months ended December 31, 2005
and 2004 (Unaudited).
Statements of Cash Flows - Three months ended December 31, 2005
and 2004 (Unaudited).
Notes to Financial Statements (Unaudited).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 3. Controls and Procedures
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.
PART I - FINANCIAL INFORMATION Item 1.
Financial Statements
3
Med Gen, Inc.
Balance Sheet
December 31, 2005
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 581,632
Accounts receivable, net 92,722
Inventory 135,943
Other current assets 5,700
---------------
Total Current Assets 815,997
---------------
Property and Equipment, net 41,687
Other Assets ---------------
Deferred financing fees 186,420
Deposits and other 50,356
---------------
$ 1,094,460
===============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts payable $ 5,479
Accrued expenses 455,055
Accrued litigation judgment 2,426,191
---------------
Total Current Liabilities 2,886,725
---------------
Derivative financial instruments 766,044
---------------
Convertible debentures 182,705
---------------
Stockholders' (Deficit)
Preferred stock, $.001 par value, 5,000,000 shares
authorized:
Series A 8% cumulative, convertible, 1,500,000 shares
authorized, no shares issued and outstanding -
Undesignated, 3,500,000 shares authorized -
Common stock, $.001 par value, 495,000,000 shares
authorized, 8,706,727 shares issued and outstanding 8,707
Paid in capital 24,484,941
Accumulated (deficit) (27,199,662)
---------------
(2,706,014)
Receivable for common stock (35,000)
---------------
(2,741,014)
---------------
$ 1,094,460
===============
See accompanying notes to the financial statements.
4
Med Gen, Inc.
Statements of Operations
For the Three Months Ended December 31, 2005 and 2004
(Unaudited)
2005 2004
----------- ----------
Net sales $ 100,148 $ 282,173
Cost of sales 28,150 99,640
----------- ----------
Gross profit 71,998 182,533
----------- ----------
Operating expenses:
Selling, general and administrative
expenses - non cash stock compensation
- not included in selling, general and
administrative expenses below 55,700 120,000
Selling, general and administrative expenses 705,222 317,677
----------- ----------
760,922 437,677
----------- ----------
(Loss) from operations (688,924) (255,144)
Other (income) expense:
Derivative instrument income (49,717) -
Interest income (3,888) -
Interest expense 144,580 4,254
----------- ----------
90,975 4,254
----------- ----------
Net (loss) $ (779,899) $ (259,398)
=========== ==========
Per share information - basic and fully diluted:
Weighted average shares outstanding 6,739,173 1,346,822
Net (loss) per share $ (0.12) $ (0.19)
=========== ==========
See accompanying notes to the financial statements.
5
Med Gen, Inc.
Statements of Cash Flows
For the Three Months Ended December 31, 2005 and 2004
(Unaudited)
2005 2004
----------- -----------
Cash flows from operating activities:
Net cash (used in) operating activities $ (745,128) $ (400,741)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (9,174) -
----------- -----------
Net cash (used in) investing activities (9,174) -
----------- -----------
Cash flows from financing activities:
Proceeds from advances and notes payable
- related parties - 156,000
Proceeds from convertible debentures 575,000 -
Proceeds from option exercises - related parties - 51,227
----------- -----------
Net cash provided by financing activities 575,000 207,227
----------- -----------
Net (decrease) in cash (179,302) (193,514)
Beginning - cash balance 760,934 213,708
----------- -----------
Ending - cash balance $ 581,632 $ 20,194
=========== ===========
See accompanying notes to the financial statements.
6
MED GEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
(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, 2005, 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) 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
$3,000,000 resulting from net operating loss carryforwards
aggregating approximately $8,700,000 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. The
principal difference between the accumulated deficit for income
tax purposes and for financial reporting purposes results from
non-cash stock compensation being charged to operations for
financial reporting purposes.
7
(5) Stockholders' (Deficit)
During the period from October through December 2005 the
Company issued an aggregate of 1,290,000 shares of common
stock for services rendered. The shares were valued at their
fair market value of $55,700 which was charged to
operations during the period.
During the period from October through December 2005 the
Company issued an aggregate of 4,537,950 shares of common stock
for the conversion $68,372 of the notes described on Note 7.
During December 2005 the Company cancelled an aggregate of 400,000
shares of common stock which it held for issuance to settle the
litigation described in Note 6.
Stock-based Compensation
The Company did not issue options during the period ended
December 31, 2005.
A summary of stock option activity is as follows:
Weighted Weighted
Number average average
of exercise fair
shares price value
------ ----- -----
Balance at
September 30, 2005 9,197 $24.50 $24.50
Granted -
Exercised/Forfeited -
--------
Balance at
December 31, 2005 9,197 $24.50 $24.50
========
The following table summarizes information about fixed-price
stock options at December 31, 2005:
Outstanding Exercisable
----------- -----------
Weighted Weighted Weighted-
Average Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ------ ------------ --------
$1.01 1,597 1.0 years $20.20 1,597 $20.20
$1.25 5,000 3.0 years $25.00 100,000 $25.00
$1.31 2,600 3.0 years $26.20 2,600 $26.20
----------- -----------
9,197 9,197
=========== ===========
(6) Commitments, Concentrations and Contingencies
During the period ended December 31, 2005, the Company derived
22%, 22% and 15% of its total sales from three customers.
At December 31, 2005, $29,658 is due from these customers.
8
Litigation
During May 2003 Global Healthcare Laboratories, Inc. (Global)
made a claim against the Company for breach of contract under a
master license agreement. Management contended that Global
committed fraud and multiple breaches of the master license
agreement and that the claim was without merit. The matter was
re-filed for the third time by the plaintiffs after two prior
dismissals by the Federal courts for failure to state a cause
of action. On August 31, 2004 a verdict was rendered in favor
of the plaintiffs and they were awarded a judgment in the sum
of $2,501,191. The Company initially intended to appeal the
verdict, however on December 3, 2004, the Company and Global
settled the matter as follows:
The Company would make cash payments to Global
aggregating $200,000 through March 1, 2005, and would issue
to Global an aggregate of 400,000 shares of common stock. The
shares to be issued were valued at their fair market value of
$1,120,000. The Company has recorded an accrual of $200,000 for
the cash payments due and a stock subscription of $1,120,000 for
the common shares issuable at September 30, 2004, and charged
$1,320,000 to operations for the settlement during the year ended
September 30, 2004. The Company has agreed to file a registration
statement covering an aggregate of 510,000 shares of common
stock on or before January 15, 2005, and should it not due so an
additional 25,000 shares of common stock would be due to Global.
Global will be required to execute proxies giving the voting
rights of the shares issuable to an officer of the Company.
A dispute between the parties arose and the settlement
agreement was set aside by the Court and no new settlement
agreement has yet been reached. Through September 30,2005,
the Company made payments to Global aggregating $75,000. At
September 30, 2005, the Company has recorded an accrual
amounting $2,426,191 (the original judgment of $2,501,191 less
the payments made of $75,000) plus post judgment interest at 7%
of $169,800. During the year ended September 30, 2005, the
Company charged $1,181,191 to operations for the difference
between the settlement recorded during 2004 and the total
judgment awarded. The Company is currently attempting to negotiate
a new settlement agreement with Global. In addition, the Company
issued 400,000 shares of its common stock which were held by
the Company pending issuance to Global. These shares were
cancelled when the settlement was set aside.
During the period ended December 31, 2005, the Company recorded
an additional $43,770 of post judgment interest.
In December 2005, the Company filed litigation against CVS,
Inc. The Company sold CVS in excess of $140,000 dollars of
goods and received payment of approximately $26,000 during
an 18 month period. CVS terminated the product in late May 2005
and claims the Company owes them $77,000. Management cannot
determine the outcome of this litigation at this time.
During the periods covered by these financial statements
the Company issued shares of common stock and subordinated
debentures without registration under the Securities Act of
1933. Although the Company believes that the sales did not
involve a public offering of its securities and that the
Company did comply with the "safe harbor" exemptions from
registration, if such exemptions were found not to apply, this
could have a material impact on the Company's financial
position and results of operations. In addition, the Company
issued shares of common stock pursuant to Form S-8 registration
statements and pursuant to Regulation S. The Company believes that
it complied with the requirements of Form S8 and Regulation S in
regard to these issuances, however if it were determined that
the Company did not comply with these provisions this could
have a material impact on the Company's financial position and
results of operations.
9
(7) CALLABLE SECURED CONVERTIBLE NOTES AND DERIVATIVE INSTRUMENT LIABILITIES
Derivative financial instruments
The Company does not use derivative instruments to hedge
exposures to cash flow, market, or foreign currency risks.
The Company reviews the terms of convertible debt and
equity instruments issued to determine whether there are
embedded derivative instruments, including the embedded
conversion option, that are required to be bifurcated and
accounted for separately as a derivative financial instrument.
In circumstances where the convertible instrument contains more
than one embedded derivative instrument, including the
conversion option, that is required to be bifurcated, the
bifurcated derivative instruments are accounted for as a
single, compound derivative instrument. Also, in connection
with the sale of convertible debt and equity instruments, the
Company may issue freestanding options or warrants that may,
depending on their terms, be accounted for as derivative
instrument liabilities, rather than as equity. The Company
may also issue options or warrants to non-employees in
connection with consulting or other services they provide.
When the risks and rewards of any embedded derivative
instrument are not "clearly and closely" related to the risks and
rewards of the host instrument, the embedded derivative
instrument is generally required to be bifurcated and accounted
for separately. If the convertible instrument is debt, or has
debt-like characteristics, the risks and rewards associated with
the embedded conversion option are not "clearly and closely"
related to that debt host instrument. The conversion option has
the risks and rewards associated with an equity instrument,
not a debt instrument, because its value is related to the
value of our common stock. Nonetheless, if the host instrument
is considered to be "conventional convertible debt" (or
"conventional convertible preferred stock"), bifurcation of the
embedded conversion option is generally not required.
However, if the instrument is not considered to be
conventional convertible debt (or conventional convertible
preferred stock), bifurcation of the embedded
conversion option may be required in certain circumstances.
Certain instruments, including convertible debt and
equity instruments and the freestanding options and warrants
issued in connection with those convertible instruments, may be
subject to registration rights agreements, which impose
penalties for failure to register the underlying common stock by
a defined date. If the convertible debt or equity instruments
are not considered to be "conventional", then the existence of
the potential cash penalties under the related registration
rights agreement requires that the embedded conversion option
be accounted for as a derivative instrument liability.
Similarly, the potential cash penalties under the related
registration rights agreement may require us to account for
the freestanding options and warrants as derivative financial
instrument liabilities, rather than as equity. In addition,
when the ability to physical or net-share settle the
conversion option or the exercise of the freestanding options
or warrants is deemed to be not within the control of the
company, the embedded conversion option or freestanding options
or warrants may be required to be accounted for as a
derivative financial instrument liability.
Derivative financial instruments are initially measured at
their fair value. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at
each reporting date, with changes in the fair value reported as
charges or credits to income. For option-based derivative
financial instruments, the Company uses the Black-Scholes option
pricing model to value the derivative instruments.
If freestanding options or warrants were issued in connection
with the issuance of convertible debt or equity instruments and
will be accounted for as derivative instrument liabilities
(rather than as equity), the total proceeds received are first
allocated to the fair value of those freestanding instruments.
If the freestanding options or warrants are to be accounted for
10
as equity instruments, the proceeds are allocated between the
convertible instrument and those derivative equity instruments,
based on their relative fair values. When the convertible debt
or equity instruments contain embedded derivative instruments
that are to be bifurcated and accounted for as liabilities,
the total proceeds allocated to the convertible host instruments
are first allocated to the fair value of all the bifurcated
derivative instruments. The remaining proceeds, if any,
are then allocated to the convertible instruments
themselves, usually resulting in those instruments being
recorded at a discount from their face amount.
To the extent that the fair values of the freestanding
and/or bifurcated derivative instrument liabilities exceed
the total proceeds received, an immediate charge to income is
recognized, in order to initially record the derivative
instrument liabilities at their fair value.
The discount from the face value of the convertible debt,
together with the stated interest on the instrument, is amortized
over the life of the instrument through periodic charges to
income, usually using the effective interest method. When
the instrument is convertible preferred stock, the dividends
payable are recognized as they accrue and, together with the
periodic amortization of the discount, are charged directly to
retained earnings.
The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as
equity, is re-assessed periodically, including at the end
of each reporting period. If re-classification is required, the
fair value of the derivative instrument, as of the determination
date, is reclassified. Any previous charges or credits to income
for changes in the fair value of the derivative instrument are
not reversed. Derivative instrument liabilities are classified
in the balance sheet as current or non-current based on
whether or not net-cash settlement of the derivative instrument
could be required within twelve months of the balance sheet
date.
On March 30, 2005, the Company entered into a Securities
Purchase Agreement with four accredited investors ("Note
Holders") for the sale of up to (i) $1,540,000 in Callable
Secured Convertible Notes (the "Convertible Notes") and (ii)
warrants to purchase up to 1,540,000 shares of its common
stock (the "Warrants"). The Convertible Notes bear interest at
8% and have a maturity date of three years from the date of
issuance. The Company is not required to make any principal
payments during the term of the Convertible Notes. The
Convertible Notes are convertible into shares of the Company's
common stock at the Note Holders' option, at the lower of (i)
$0.09 per share or (ii) 60% of the average of the three lowest
intra-day trading prices for the common stock as quoted on the
Over-the-Counter Bulletin Board for the 20 trading days
preceding the conversion date. The warrants are exercisable for
a period of five years from the date of issuance and have
an exercise price of $0.085 per share. The full principal amount
of the Notes is due upon the occurrence of an event of default.
The Convertible Notes and the Warrants were issued in
three tranches, on March 30, 2005 ($740,000 of Convertible
Notes and
740,000 Warrants), on May 25, 2005 ($700,000 of Convertible
Notes and 700,000 Warrants), and on August 23, 2005
($100,000 of Convertible Notes and 100,000 Warrants).
On August 31, 2005, the Company sold an additional $500,000
of Convertible Notes and 500,000 Warrants to the same four
investors. The terms of these Convertible Notes and Warrants are
the same as those previously issued, except that the exercise
price of the Warrants is $0.09 per share.
On October 31, 2005, the Company sold an additional $600,000
of Convertible Notes and 600,000 Warrants to the same four
investors. The terms of these Convertible Notes and Warrants are
the same as those previously issued, except that the exercise
price of the Warrants is $0.09 per share.
11
The conversion price of the Convertible Notes and the
exercise price of the warrants will be adjusted in the event
that the Company issues common stock at a price below the
initial fixed conversion or exercise price, with the exception
of any shares of common stock issued in connection with the
Convertible Notes. The conversion price of the Convertible
Notes and the exercise price of the warrants may also be
adjusted in certain circumstances such as if the Company pays a
stock dividend, subdivides or combines outstanding shares of
common stock into a greater or lesser number of shares, or takes
such other actions as would otherwise result in dilution of the
Note Holders' position. The Note Holders have contractually
agreed to restrict their ability to convert their Convertible
Notes or exercise their warrants and receive shares of the
Company's common stock such that the number of shares of
common stock held by the Note Holders and their affiliates
after such conversion or exercise does not exceed 4.99% of
the then issued and outstanding shares of common stock. In
addition, the Company has granted the Note Holders
registration rights and a security interest in substantially
all of the Company's assets. The Company has the right to
prepay the Convertible Notes under certain circumstances at a
premium ranging from 25% to 50% of the principal amount,
depending on the timing of such prepayment.
Pursuant to the terms of a Registration Rights Agreement
entered into with the Note Holders, the Company is obligated to
register for resale, within a defined time period, the shares
underlying the Warrants and the shares issuable on
conversion of the Convertible Notes. The terms of the
Registration Rights Agreement provide that, in the event that
the registration statement does not become effective within
105 days of the issuance of the Warrants or Convertible
Notes, the Company is required to pay to the Note Holders as
liquidated damages, an amount equal to 2% per month of the
principal amount of the Convertible Notes. This amount may be
paid in cash or, at the Holder's option, in shares of common
stock priced at the conversion price then in effect on the date
of the payment.
Because the Warrants are subject to a Registration
Rights Agreement with the Note Holders, they have been accounted
for as derivative instrument liabilities (see below) in
accordance with EITF 00-19, "Accounting for Derivative
Financial Instruments Indexed To, and Potentially Settled In,
a Company's Own Common Stock" (EITF 00-19). Accordingly the
fair value of the warrants, amounting to an aggregate of
$1,548,400, was recorded as a derivative instrument
liability. The fair value of the warrants was determined using
the Black-Scholes valuation model, based on the market price of
the common stock on the date the Warrants were issued, an
expected dividend yield of 0%, a risk-free interest rate based
on constant maturity rates published by the U.S. Federal
Reserve, applicable to the life of the Warrants, expected
volatility of 50% and the five year life of the Warrants.
The Company is required to re-measure the fair value of
the warrants at each reporting period until the registration
statement is declared effective. Accordingly, the Company re-
measured the fair value of the Warrants at December 31, 2005
using the BlackScholes valuation model based on the market
price of the common stock on that date, an expected dividend
yield of 0%, a risk-free interest rate based on constant
maturity rates published by the U.S. Federal Reserve,
applicable to the remaining term of the Warrants, expected
volatility of 50% and an expected life equal to the remaining
term of the Warrants. This resulted in a fair market value for
the warrants of $2,479 at December 31, 2005. Upon the Company
meeting its obligation to register the securities, the fair
value of the Warrants on that date will be reclassified to
equity.
Because the conversion price of the Convertible Notes is
not fixed, the Convertible Notes are not "conventional
convertible debt" as that term is used in EITF 00-19.
Accordingly, because the shares underlying the conversion of
the Convertible Notes are subject to the Registration Rights
Agreement with the Holders, the Company is required to bifurcate
and account separately for the embedded conversion options,
together with any other derivative instruments embedded in the
Convertible Notes.
12
The conversion option related to each Convertible Note,
together with the embedded call options represented by the Note
Holders' right to receive interest payments and any
registration rights penalties in common stock, were treated,
for each Convertible Note, as a single compound derivative
instrument, and were bifurcated from the Convertible Note and
accounted for separately as a derivative instrument liability
(see below). The bifurcated embedded derivative instruments,
including the embedded conversion options which were valued using
the Black-Scholes valuation model, were recorded at their
initial fair value of an aggregate of $21,341,778. Because
the initial fair values of these embedded derivative
instruments, together with the fair values of the Warrants
that were also accounted for as derivative instrument
liabilities and recorded at their fair values, exceeded
the proceeds received (the face amount of the Convertible Notes),
the difference was recorded as an immediate charge to income.
The discount from the face amount of the Convertible
Notes represented by the value assigned to the Warrants and
bifurcated derivative instruments is being amortized over the
period to the due date of each Convertible Note, using the
effective interest method.
A summary of the Callable Secured Convertible Notes and
derivative instrument liabilities at December 31, 2005, is as
follows:
Callable Secured Convertible Notes; 8% per $740,000
annum; due March 30, 2008
Less: face amount of Notes converted (190,696)
--------
549,304
Less: unamortized discount related to warrants (366,599)
and bifurcated embedded derivative instruments --------
$182,705
--------
Callable Secured Convertible Notes; 8% per $700,000
annum; due May 25, 2008 --------
Less: unamortized discount related to warrants (700,000)
and bifurcated embedded derivative instruments --------
$ -
--------
Callable Secured Convertible Notes; 8% per $100,000
annum; due August 23, 2008
Less: unamortized discount related to warrants (100,000)
and bifurcated embedded derivative instruments --------
$ -
--------
Callable Secured Convertible Notes; 8% per $500,000
annum; due August 31, 2008 --------
Less: unamortized discount related to warrants (500,000)
and bifurcated embedded derivative instruments --------
$ -
--------
Callable Secured Convertible Notes; 8% per $600,000
annum; due October 31, 2008 --------
Less: unamortized discount related to warrants (600,000)
and bifurcated embedded derivative instruments --------
$ -
========
Total carrying value at December 31, 2005 $182,705
========
13
Derivative financial instrument liabilities
We use the Black-Scholes valuation model to value the Warrants
and the embedded conversion option components of any
bifurcated embedded derivative instruments that are recorded as
derivative liabilities.
In valuing the Warrants and the embedded conversion
option components of the bifurcated embedded derivative
instruments, at the time they were issued and at December 31,
2005, we used the market price of our common stock on the
date of valuation, an expected dividend yield of 0% and the
remaining period to the expiration date of the warrants
or repayment date of the Convertible Notes. All warrants
and conversion options can be exercised by the holder at any
time.
Because of the limited historical trading period of our
common stock, the expected volatility of our common stock
over the remaining life of the conversion options and Warrants
has been estimated at 50%. The risk-free rates of return used
were based on constant maturity rates published by the U.S.
Federal Reserve, applicable to the remaining life of the
conversion options or Warrants.
At December 31, 2005, the following derivative liabilities
related to common stock Warrants and embedded derivative
instruments were outstanding:
Exercise Value
Price Per Value - Issue December 31,
Issue Date Expiry Date Share Date 2005
- -----------------------------------------------------------------------------
03-30-2005 03-30-2010 740,000 warrants $0.085 $673,400 $ 651
05-25-2005 05-25-2010 700,000 warrants 0.085 693,000 672
08-23-2005 08-23-2010 100,000 warrants 0.085 31,000 99
08-26-2005 08-26-2010 500,000 warrants 0.090 145,000 505
10-31-2005 10-31-2010 600,000 warrants 0.090 6,000 552
---------
Fair value of freestanding derivative instrument
liabilities for warrants $ 2,479
---------
Value
Value - Issue December 31,
Issue Date Expiry Date Date 2005
- -----------------------------------------------------------------------------
03-30-2005 03-30-2008 $617,676 convertible notes $9,176,010 $178,006
05-25-2005 05-25-2008 $700,000 convertible notes 9,451,556 210,000
08-23-2005 08-23-2008 $100,000 convertible notes 413,333 30,000
08-26-2005 08-26-2008 $500,000 convertible notes 1,928,889 150,000
10-31-2005 10-31-2008 $500,000 convertible notes 372,000 195,559
---------
Fair value of bifurcated embedded derivative
instrument liabilities associated with the
above convertible notes $ 763,565
---------
Total derivative financial instruments $ 766,044
=========
14
(8) Basis of Reporting
The Company's financial statements are presented on a
going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course
of business. The Company has experienced a significant
loss from operations including the settlement of certain
litigation. For the period ended December 31, 2005, the
Company incurred a net loss of $779,899 and has a
working capital deficit, an accumulated deficit and a
stockholders deficit of $2,070,728, $27,199,662 and $2,741,014
at December 31, 2005.
The 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. In addition, the Company's 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 the
Company operates.
The Company is pursuing financing for its operations and
seeking additional investments. In addition, the Company is
seeking to expand its revenue base by adding new customers and
increasing its advertising. Failure to secure such financing
or to raise additional equity capital and to expand its
revenue base may result in the Company depleting its available
funds and not being able pay its obligations.
The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification
of liabilities that may result from the possible inability of
the Company to continue as a going concern.
(9) Subsequent Events
During January 2006 the Company repriced certain options granted
to an officer which resulted in a charge to operations of $34,650.
During January 2006 the Company issued 1,800,000 shares of common
stock related to the conversion of an aggregate of $9,342 of the
convertible debt described in Note 7.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
Three months ended December 31, 2005
Compared with three months ended December 31, 2004
- --------------------------------------------------
GENERAL
- -------
The Company is headquartered at 7284 W. Palmetto Park Rd., Suite
207,Boca Raton, Florida 33433.The Company has elected to
outsource all the manufacturing of its products under protective
agreements at this time.
Results of Operations
- ---------------------
For the 2005 first fiscal quarter ended December 31, 2005, Sales
decreased 64.51% to $100,148 from $282,173.This decrease was due
to the company's inability to substantially increase "pull-
thru's" of its products as a result of its inadequate advertising
budget. This has caused the loss of most of the Company's major
retail accounts. Snorenz[R] and Good Nights Sleep[R] are being
sold at three major chains, Rite Aid, Brooks - Eckerd and
Albertson's as well as smaller chains such as Happy Harry's and
Meijers, The three largest chains account for almost 59% of the
quarter's sales figures. The company also distributes to smaller
stores through its contracts with AmerisourceBergen, Cardinal
Distributing and others.
In November the Company began its direct marketing program with
full page advertisements in the New York Times, Daily News,
Newsday, the New York Post and Newsweek. By driving the customer
to its website the company hopes to increase cash flow and build
back its sales revenue. During the quarter the sales on its
website have been minimal although they reflect a 33% growth from
month to month. Management is exploring other various methods to
increase traffic flow as a result of its Direct Marketing
Programs and will launch several joint venture programs as well
as its own TV programs in the next quarter.
Gross profit for the first quarter was $71,998 versus $182,533
for the year ago quarter, an decrease of 60.56%. The decrease was
due to the large decline in overall sales for the quarter.
Gross profit margins for the quarter increased to 71.89% of sales up
from 64.68% in the previous year ago quarter. The increase was due
to lowered manufacturing costs associated with the Company's products
and the Company using up its inventory on hand during the quarter.
Operating expenses (selling, general and administrative expenses)
increased $387,545 to $705,222 from $317,677, an increase of 122%.
The increase is due to several factors including, increased legal
fees of $62,000, consultants fees of $123,110 and outside reps
commissions of $72,295. Management believes that most of these
fees will not recur in the second quarter of fiscal 2006.
Operating loss was $688,924 as opposed to $255,144 in the prior
year's quarter.
Interest expense increased from $4,254 in the year ago quarter to
$144,580 for this quarter. This was due to the Company's increased
borrowings which are approximately $2,435,000 at an 8% coupon
rate and the interest accrual related to the judgment in favor of
Global Healthcare Laboratories, Inc. against us..
For the first fiscal quarter the company reported a net loss of
$779,899 ($0.12) per share versus a loss of $259,398 ($0.19) per
share in the year ago quarter.
Liquidity and Capital Resources
- -------------------------------
Cash on hand at December 31, 2005 was $581,632 and the Company
had a working capital deficit of $2,070,728 at December 31, 2005.
Net cash used in operating activities was $745,128 during the six
months ended December 31, 2005.
Net cash used in investing activities was $9,174 during the six
months ended December 31, 2005.
16
Net cash provided by financing activities was $575,000 during the
quarter ended December 31, 2005, which consisted of $575,000 from
the proceeds from the sale of 8% convertible debentures.
The Company expects to introduce its new product the Un-Diet Program
in the March quarter. Further, the Company has signed three joint
venture contracts with various internet marketing Companies to
increase traffic to its websites Two programs will target opt-in
[only] customer bases, the other will be via an infomercial launch.
The Company does not believe it has sufficient cash resources,
receivables and cash flow to provide for all general corporate
operations in the foreseeable future. In order to avoid any
disruption in business, the Company plans on filing a proxy to
increase the authorized shares from 500,000,000 to 2,500,000,000
and raise additional capital from its present lender.
The Company believes it will settle with its judgment holder
during the March Quarter and at the appropriate time, will make
all appropriate disclosures. Thereafter the Company intends to
borrow $ $1,000,000 from its lender to continue to operate and
execute its business plan.
We cannot continue to satisfy our current cash requirements for a
period of twelve (12) months through our existing capital. We
anticipate total estimated operating expenditures of approximately
$1,000,000 over the next 12 months, in the following areas:
Legal Fees ; $65,000.00
Proxy Registration and Printing Costs: $25,000.00
SB-2 Registration Costs: $50,000.00
Additional Derivative Accounting Costs: $36,000.00
Inventory Advances: $87,000.00
Advertising: $232,000.00
Operating Deficit : $205,000.00
Repatriation of Settlement Advance : $300,000.00
Our current cash of $581,632 as of December 30th, 2005 as well as
our cash of $359,239 as of February 6th, 2006 will satisfy our
cash requirements thru the middle of March 2006. If we are able
to settle the litigation we will be required to participate with
a minimum of $300,000 dollars of our present cash position.
Accordingly, we will be unable to fund our expenses through our
existing assets or cash. In order to acquire funding, we may be
required to issue shares of our common stock, which will dilute
the interest of current shareholders. Moreover, we may still need
additional financing through traditional bank financing or a debt
17
or equity offering; however, because we have limited revenues,
and a poor financial condition, we may be unsuccessful in obtaining
such financing or the amount of the financing may be minimal and
therefore inadequate to implement our business plans. In the
event that we do not receive financing or our financing is
inadequate, we may have to liquidate our business and undertake
any or all of the following actions:
* Significantly reduce, eliminate or curtail our business,
operating and research and development activities so as to
reduce operating costs;
* Sell, assign or otherwise dispose of our assets, if any, to
raise cash or to settle claims by creditors;
* Pay our liabilities in order of priority, if we have
available cash to pay such liabilities;
* If any cash remains after we satisfy amounts due to our
creditors, distribute any remaining cash to our shareholders
in an amount equal to the net market value of our net
assets;
* File a Certificate of Dissolution with the State of Nevada to
dissolve our corporation and close our business;
* Make the appropriate filings with the Securities and Exchange
Commission so that we will no longer be required to file
periodic and other required reports with the Securities and
Exchange Commission, if, in fact, we are a reporting company
at that time; and
* Make the appropriate filings with the National Association of
Security Dealers to affect a delisting of our stock.
Based upon our current assets, however, we would not have the
ability to distribute any cash to our shareholders.
If we have any liabilities that we are unable to satisfy and we
qualify for protection under the U.S. Bankruptcy Code, we may
voluntarily file for reorganization under Chapter 11 or liquidation
under Chapter 7. Our creditors may also file a Chapter 7 or
Chapter 11 bankruptcy action against us. If our creditors or
we file for Chapter 7 or Chapter 11 bankruptcy, our creditors
will take priority over our shareholders. If we fail to file for
bankruptcy under Chapter 7 or Chapter 11 and we have creditors;
such creditors may institute proceedings against us seeking
forfeiture of our assets, if any. We do not know and cannot
determine which, if any, of these actions we will be forced to
take. If any of these foregoing events occur, you could lose your
entire investment in our shares.
To date, we have funded our activities principally from loans
from related parties and loans from third party lenders.
Contractual Obligations and Commercial Commitments We have no
contractual obligations, including lease obligations, apart from
agreements in the normal course of our business.
18
Basis of Reporting
The Company's financial statements are presented on a
going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of
business. The Company has experienced a significant loss
from operations including the settlement of certain litigation.
For the period ended December 31, 2005, the Company incurred
a net loss of $779,899 and has a working capital deficit, an
accumulated deficit and a stockholders' deficit of $2,070,728,
$27,199,662 and $2,741,014 at December 31, 2005.
The 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.
In addition, the Company's 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 the Company operates.
The Company is pursuing financing for its operations and
seeking additional investments. In addition, the Company is
seeking to expand its revenue base by adding new customers and
increasing its advertising. Failure to secure such financing
or to raise additional equity capital and to expand its
revenue base may result in the Company depleting its available
funds and not being able pay its obligations.
The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification
of liabilities that may result from the possible inability of
the Company to continue as a going concern.
Derivative instruments
In connection with the sale of debt or equity instruments, we
may sell options or warrants to purchase our common stock. In
certain circumstances, these options or warrants may be classified
as derivative liabilities, rather than as equity. Additionally,
the debt or equity instruments may contain embedded derivative
instruments, such as conversion options, which in certain
circumstances may be required to be bifurcated from the
associated host instrument and accounted for separately as a
derivative instrument liability.
The identification of, and accounting for, derivative instruments
is complex. Our derivative instrument liabilities are re-valued
at the end of each reporting period, with changes in the fair
value of the derivative liability recorded as charges or credits
to income, in the period in which the changes occur. For options,
warrants and bifurcated conversion options that are accounted for
as derivative instruments liabilities, we determine the fair
19
value of these instruments using the Black-Scholes option pricing
model. That model requires assumptions related to the remaining
term of the instruments and risk-free rates of return, our
current common stock price and expected dividend yield, and the
expected volatility of our common stock price over the life of
the option. We have estimated the future volatility of our common
stock price based the history of our stock price. The
identification of, and accounting for, derivative instruments and
the assumptions used to value them can significantly affect our
financial statements.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
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, 2005 are those that depend
most heavily on these judgments and estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In November 2004, the Financial Accounting Standards Board
(FASB) issued SFAS 151 "Inventory Costs". This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory
Pricing, to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted
material (spoilage). In addition, this Statement requires
that allocation of fixed production overhead to the costs of
conversion be based on the normal capacity of the production
facilities. The provisions of this Statement will be
effective for the Company beginning with its fiscal year
ending 2005. The Company does not believe that this standard
will have a material impact on the Company's financial
position, results of operations or cash flows.
In December 2004, the FASB issued SFAS 153 "Exchanges of
Non monetary Assets - an amendment of APB Opinion No. 29".
This Statement amended APB Opinion 29 to eliminate the
exception for non monetary exchanges of similar productive
assets and replaces it with a general exception for exchanges
of non monetary assets that do not have commercial substance. A
non monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly
as a result of the exchange. The adoption of this Standard is
not expected to have a material impact on the Company's
financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS 123 (revised 2004) "Share
Based Payment". This Statement requires that the cost
resulting from all share-based transactions be recorded in the
financial statements. The Statement establishes fair value as
20
the measurement objective in accounting for share-based
payment arrangements and requires all entities to apply a fair-
value-based measurement in accounting for share-based payment
transactions with employees. The Statement also establishes fair
value as the measurement objective for transactions in which an
entity acquires goods or services from non-employees in
share-based payment transactions. The Statement replaces SFAS
123 "Accounting for Stock-Based Compensation" and supersedes
APB Opinion No. 25 "Accounting for Stock Issued to Employees".
The provisions of this Statement will be effective for the
Company beginning with its fiscal year ending in 2006. The
Company is currently evaluating the impact this new Standard
will have on its financial position, results of operations or
cash flows.
In March 2005, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No.107 (SAB 107) which
provides guidance regarding the interaction of SFAS 123(R)
and certain SEC rules and regulations. The new guidance
includes the SEC's view on the valuation of share-based
payment arrangements for public companies and may simplify
some of SFAS 123(R)'s implementation challenges for
registrants and enhance the information investors receive.
In March 2005, the FASB issued FIN 47, Accounting for
Conditional Asset Retirement Obligations, which clarifies
that the term 'conditional asset retirement obligation' as
used in SFAS 143, Accounting for Asset Retirement Obligations,
refers to a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within
the control of the entity. FIN 47 requires an entity to
recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value can be
reasonably estimated. FIN 47 is effective no later than the
end of the fiscal year ending after December 15, 2005. The
Company does not believe that FIN 47 will have a material
impact on its financial position, results from operations or
cash flows.
In August 2005, the FASB issued SFAS 154, Accounting Changes
and Error Corrections. This statement applies to all
voluntary changes in accounting principle and to changes
required by an accounting pronouncement if the pronouncement
does not include specific transition provisions, and it
changes the requirements for accounting for and reporting them.
Unless it is impractical, the statement requires retrospective
application of the changes to prior periods' financial
statements. This statement is effective for accounting
changes and correction of errors made in fiscal years beginning
after December 15, 2005. The adoption of this Standard is not
expected to have a material impact on the Company's financial
position, results of operations or cash flows.
FORWARD LOOKING STATEMENTS
- --------------------------
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
21
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 to
update the forward-looking statements contained in this Form 10QSB filing.
Item 3. Controls & Procedures
As required by Rule 13a-15 under the Exchange Act, as of the date of the
filing of this report , the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures. This evaluation was carried out under the
supervision and with the participation of the Company's management,
including the Company's President, Chief Executive Officer and Chief
Financial Officer. Based upon that evaluation, the Company's President,
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective. There have
been no significant changes in the Company's internal controls or in
other factors, which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed
in Company reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in
the Securities and Exchange Commission's rules and forms. Disclosure
controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed
in Company reports filed under the Exchange Act is accumulated and
communicated to management, including the Company's Chief Executive
Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
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.
22
PART II
-------
Item 1. LEGAL PROCEEDINGS
During May 2003 Global Healthcare Laboratories, Inc. ("Global")
made a claim against the Company for breach of contract under a master
license agreement. A trial was held in August 2004 and a jury verdict in
the sum of $2,501,191 was awarded in favor of the plaintiff's. The Company
subsequently settled the judgment on December 3rd, 2004. The basic terms
of the settlement are the payment of the sum of $200,000 to plaintiffs,
spread over a 4-5 month period and the registration of 8,000,000 common
shares by January 15th, 2005. The Company made the first three installments
totaling $75,000 on a timely basis. The Company tendered the fourth payment
13 days late and the plaintiff's unilaterally declared the settlement
null and void. The Company filed a motion to enforce the provisions of
the agreement in March 2005.
The uncontroverted facts are as follows:
The Company made the first payment on time, the second payment
was two days late and the third payment was 7 days late (of which
four days were due to a UPS delivery problem). The fourth payment
was made 13 days late as the Company was undergoing severe cash
flow problems at the time and the check was delivered only after
Mr. Mitchell, the President borrowed the necessary funds on a
homeequity loan to cover the amount. The Company also tendered
the final future payment at that time in advance of the payment
schedule. The stock was registered on August 12th, 2005 and the
plaintiff's orally rejected delivery.
The Court ruled that because the settlement contract had a "time
is of the essence clause" the untimely payments made by the
Company allow Global Healthcare to disaffirm the agreement. The
Court ruled that Enriquillo Export & Import Inc v. M.B.R.
Industries Inc. applies and the Company's 13 day late tender was
not adequate performance {Enriquillo had a 58 day delay}.
Furthermore, the Court ruled that the $75,000 dollars of payments
cashed by Global and tendered by the Company under the original
settlement agreement shall not be returned but rather applied to
the judgment.
At present the Company has retained the firm of Furr & Cohen
Esq.'s. and notified its lender, whose outside counsel is working
closely with the Company's counsel to reach a new settlement with
the judgment creditor. The parties have orally agreed to a
standstill agreement while they exhaust all possible remedies in
the instant matter. In the event a new accord is not reached, the
Company will be required to file a bankruptcy petition to protect
the Company and its assets. Recently, the parties have agreed in
principal to new settlement terms and a definitive agreement
should be executed no later than February 28th, 2006.
In December 2005, the Company filed a litigation against CVS,
Inc. The Company sold CVS in excess of $140,000 dollars of goods
and received payment of approximately $26,000 during an 18 month
period. CVS terminated the product in late May 2005 and claims
the Company owes them $77,000 Management expects to recover fully
in this litigation but cannot determine the possible outcome at
this time.
23
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
On October 31st, 2005 the Company received the certified tally of the
proxy solicitation which authorized the increase of the issued and
outstanding shares from 250,000,000 to 500,000,000 million. The
authorized is comprised of 495,000,000 common shares and 5,000,000
preferred shares. The vote was as follows:
For: 2,948,347
Against: 479,930
Abstain: 500
The Company amended its certificate of incorporation in Nevada to
reflect the Proxy results.
Item 5. OTHER INFORMATION
In the event that the Company settles with the judgment creditor
a proxy will be filed requesting shareholder approval increasing
the authorized shares from 500,000,000 to 2,500,000,000. The
Company will borrow an additional $1,000,000 from its lenders so
that it can continue to operate and execute its business plan.
Presently the Company filed an SB-2 Registration Statement which
went effective and covered $1,540,000 of the convertible
debentures. The Company is required to file a registration to
cover the $1,100,000 already loaned to it by its lenders and
received by the Company and the additional $1,000,000 future
funding scheduled to be received over the next few weeks. At the
present market price of the stock the registration requires a
minimum of 1,000,000,000 shares to be registered to cover the
hypothetical conversion of all of the lender's outstanding debt.
Although this registration may have a diluting effect to present
shareholders Management believes the funding will allow the
Company to avoid a bankruptcy filing, which otherwise would wipe
out all of the shareholder value.
At December 31, 2005, $2,640,000 was borrowed by the Company and
$190,696 was repaid through convertible debenture conversions
into approximately 12,057,950 common shares leaving a balance
owed to the lender of $2,449,304.
The Company intends to amend its March and June Form 10-QSB
filings for 2005 in order to comply with the new derivative
accounting regulations.
24
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 Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, promulgated
under the Securities Exchange Act of 1934, as amended
32.1 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
32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) On 10-7-2005, 10-31-2005, and 11-25-2004 a Form 8-K
was filed.
- ----------------------------------------------------------------------
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 15th, 2006
By: /s/Paul B. Kravitz
-----------------------
Paul B. Kravitz
Chief Executive Officer
25