UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] AMENDED 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, 2007
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]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of June 30, 2007, 649,438,946 shares of common stock, .001 par
value per share, were outstanding.
The Company's stock trades on the OTCBB under the symbol "MGEN".
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet - June 30, 2007 (Unaudited)
Statements of Operations - Three months ended June
30, 2006 and 2007 and Nine Months ended
June 30, 2006 and 2007 (Unaudited)
Statements of Cash Flows - Nine months ended June 30,
2006 and 2007 (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
June 30, 2007
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 1,367,266
Accounts receivable, net of reserve of $15,196 24,752
Inventory 101,858
Other current assets 5,700
-------------
Total Current Assets 1,499,576
-------------
Property and Equipment, net 30,191
-------------
Other Assets
Deferred financing fees 156,878
Deposits and other 45,089
-------------
$ 1,731,734
=============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 84,797
Accrued registration rights penalties
and accrued interest 1,499,472
Accrued litigation judgment 401,675
-------------
Total Current Liabilities 1,985,944
-------------
Derivative financial instruments 10,193,618
-------------
Convertible debentures 455,856
-------------
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, 2,495,000,000
shares authorized, 649,438,946 shares
issued and outstanding 649,439
Paid in capital 28,572,630
Accumulated (deficit) (40,125,753)
-------------
(10,903,684)
-------------
$ 1,731,734
=============
See accompanying notes to financial statements.
4
Med Gen, Inc.
Statements of Operations
For the Three Months and Nine Months Ended June 30, 2006 and 2007
(Unaudited)
Three Months Nine Months
-------------------------- --------------------------
2006 2007 2006 2007
----------- ----------- ----------- -----------
Revenue
Product $ 32,729 $ 39,170 $ 178,697 $ 116,899
Service - 700,000 - 1,300,000
----------- ----------- ----------- -----------
32,729 739,170 178,697 1,416,899
----------- ----------- ----------- -----------
Cost of sales 141,221 113,209 221,050 278,411
----------- ----------- ----------- -----------
Gross profit (loss) (108,492) 625,961 (42,353) 1,138,488
----------- ----------- ----------- -----------
Operating expenses:
Non cash stock compensation -
selling, general and administrative 269,070 319,000 494,420 1,317,800
Selling, general and administrative expenses 503,211 721,321 1,562,198 1,738,648
----------- ----------- ----------- -----------
772,281 1,040,321 2,056,618 3,056,448
----------- ----------- ----------- -----------
(Loss) from operations (880,773) (414,360) (2,098,971) (1,917,960)
----------- ----------- ----------- -----------
Other (income) expense:
Interest expense 484,224 133,193 692,190 770,182
Gain on litigation settlement (782,848) - (782,848) -
Derivative instruments 372,927 2,447,321 8,659,454 2,999,279
Interest income - (7,645) - (20,405)
----------- ----------- ----------- -----------
74,303 2,572,869 8,568,796 3,749,056
----------- ----------- ----------- -----------
(Loss) before income taxes (955,076) (2,987,229) (10,667,767) (5,667,016)
Income taxes - - - -
----------- ----------- ----------- -----------
Net (loss) $ (955,076) $ (2,987,229) $(10,667,767) $(5,667,016)
=========== ============ ============ ===========
Per share information - basic and fully diluted:
Weighted average shares outstanding 80,687,925 531,586,317 38,102,335 387,018,666
=========== ============ ============ ===========
Net (loss) per share $ (0.01) $ (0.01) $ (0.28) $ (0.01)
=========== ============ ============ ===========
See accompanying notes to financial statements.
5
Med Gen, Inc.
Statements of Cash Flows
For the Nine Months Ended June 30, 2006 and 2007
(Unaudited)
2006 2007
------------- -------------
Cash flows from operating activities:
Net cash (used in) operating activities $ (1,196,513) $ (1,316,742)
------------- -------------
Cash flows from investing activities:
Net cash (used in) investing activities (9,174) (15,600)
------------- -------------
Cash flows from financing activities:
Proceeds from option exercise 350 -
Proceeds from convertible debentures 1,850,000 1,350,000
------------- -------------
Net cash provided by financing activities 1,850,350 1,350,000
------------- -------------
Net increase in cash 644,663 17,658
Beginning - cash and cash equivalents - 1,349,608
------------- -------------
Ending - cash and cash equivalents $ 644,663 $ 1,367,266
============= =============
See accompanying notes to financial statements.
6
MED GEN, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007
(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, 2006, 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) Stockholders' (Deficit)
Common stock
During the period from October 2006 through June 2007, the Company
issued an aggregate of 259,400,000 shares of common stock for services
rendered to Bran Ltd. a foreign consultant and former lender. The shares
were valued at their fair market value of $1,117,800 which was charged
to operations during the period.
During the period from October 2006 through June 2007 the Company issued
an aggregate of 124,295,793 shares of common stock for the conversion
$132,237 of the notes described on Note 6.
During February 2007 the Company issued 100,000,000 options excersizable
at $.004 per share for a period of five years to officers. The fair
value of these shares of $200,000 was charged to operations during the
period.
7
Stock Options
A summary of stock option activity is as follows:
Weighted Weighted
Number average average
of exercise fair
shares price value
------ ----- -----
Balance at
September 30, 2006 9,197 $24.50 $0.000
Granted 100,000,000 $0.004 $0.002
Exercised/Forfeited -
Balance at -----------
June 30, 2007 100,009,197 $0.004 $0.002
===========
The following table summarizes information about fixed-price stock
options at June 30, 2007:
Outstanding Exercisable
----------- -----------
Weighted Weighted Weighted-
Average Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
$0.004 100,000,000 4.8 years $00.004 100,000,000 $00.004
$1.010 1,597 0.3 years $20.200 1,597 $20.200
$1.250 5,000 1.3 years $25.000 5,000 $25.000
$1.310 2,600 1.3 years $26.200 2,600 $26.200
----------- -----------
100,009,197 100,009,197
=========== ===========
(5) Commitments, Concentrations and Contingencies
During the period ended June 30, 2007, the Company performed consulting
services for 7 companies for fees aggregating $1,300,000.
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.
8
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 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 year ended September 30, 2006, the Company recorded an
additional $43,770 of post judgment interest.
During April 2006 the Company settled the litigation by agreeing to the
following:
A cash payment of $300,000
29 monthly payments of $31,667
The issuance of 15,000,000 common shares subject to registration rights
The holders of the shares shall have the right beginning on the
effective date of the registration statement for a period of two years
to require the Company at the Company's discretion to sell the shares
back to the Company for $200,000 or require the Company to issue
additional shares so that the value of the shares held by the holders is
$200,000. As of June 30, 2007, the Company issued an aggregate of
48,293,269 (including the 15,000,000 shares described above) shares of
common stock in full settlement of the $200,000 obligation.
As a result of the settlement the Company's obligation related to the
litigation was reduced by $782,848 which has been recorded as a gain on
the settlement date. The balance due is $401,675 at March 31, 2007.
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 S-8 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.
(6) CALLABLE SECURED CONVERTIBLE NOTES AND DERIVATIVE INSTRUMENT LIABILITIES
Between March 30, 2005 and June 21, 2007, the Company entered into a
series of eleven Securities Purchase Agreements with four accredited
investors ("Note Holders") for the sale of an aggregate of $6,840,000 of
Callable Secured Convertible Notes (the "Convertible Notes") and
warrants to purchase up to 68,240,000 shares of its common stock (the
"Warrants").
The first eight tranches of the Convertible Notes bear interest at 8%
and have a maturity date of three years from the date of issuance. The
ninth, tenth and eleventh tranches of the Convertible Notes, issued on
9
January 30, 2007, February 9, 2007 and June 21, 2007, bear interest at
6% and also mature after three years. The Company is not required to
make any principal payments during the term of the Convertible Notes.
The first through the eighth tranche of the Convertible Notes are
convertible into shares of the Company's common stock at the Note
Holders' option, at the lower of (i) a fixed price which, depending on
the note, is between $0.04 and $0.09 per share or (ii) 50% 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.
In connection with the sale of the ninth tranche on January 30, 2007,
the Company agreed to reduce the conversion price of tranches two to
seven (tranche one has already been fully converted) from 60% to 50% of
the average market price (computed as described above).
The ninth, tenth and eleventh tranches of the Convertible Notes, issued
on January 30, 2007, February 9, 2007 and June 21, 2007, are convertible
into shares of the Company's common stock at the Note Holders' option,
at the lower of (i) a fixed price of $0.04 per share or (ii) 60% of the
average trading price, computed as described above. As of June 30,
2007, that average was $0.00130, resulting in an effective conversion
price as of June 30, 2007 of $0.00078 per share for tranches nine, ten
and eleven and $0.00065 per share for all previous tranches. The full
principal amount of the Notes is due upon the occurrence of an event of
default. 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. The
Company has granted the Note Holders a security interest in
substantially all of the Company's assets.
The 68,240,000 warrants issued are exercisable for a period of five or
seven years from the date of issuance and have exercise prices that
range from $0.009 per share to $0.10 per share.
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.
Pursuant to Registration Rights Agreements entered into with the Note
Holders, the Company is obligated to register for resale, within defined
time periods, the shares underlying the Warrants and the shares issuable
on conversion of the Convertible Notes. The terms of the Registration
Rights Agreements provide that, in the event that the required
registration statements are not filed or do not become effective within
the required time periods, 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. In
connection with the sale of the ninth tranche on January 30, 2007, the
Note Holders agreed to waive all penalties incurred through that date.
The Company accrues any further penalties incurred to date, together
with an estimate of the penalties that may be incurred in the future,
based on the Company's expectation of when registration statements will
be filed and/or effective and when the shares obtained can be freely
sold without registration under Rule 144.
Because the number of shares that may be required to be issued on
conversion of the Convertible Notes is dependent on the price of the
Company's common stock and is therefore indeterminate, the embedded
10
conversion option of the Convertible Notes and the Warrants are
accounted for as derivative instrument liabilities (see below) in
accordance with EITF Issue 00-19, "Accounting for Derivative Financial
Instruments Indexed To, and Potentially Settled In, a Company's Own
Common Stock" (EITF 00-19). Accordingly, the initial fair values of the
embedded conversion options and the Warrants were recorded as derivative
instrument liabilities. The Company is required to re-measure the fair
value of these derivative instrument liabilities at each reporting
period. For option-based derivative instruments, the Company estimates
fair value using the Black-Scholes valuation model, based on the market
price of the common stock on the valuation 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 instruments, and an expected life equal to the remaining term of
the instruments. 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 discount from the face amount of the Convertible Notes represented
by the value initially 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 at June 30, 2007, is
as follows:
Carrying Value -
Principal Unamortized June 30,
Issue Date Due Date Face Amount Outstanding Discount 2007
- ---------------------------------------------------------------------------------
03-30-2005 03-30-2008 $ 740,000 $ 0 $ 0 $ -
05-25-2005 05-25-2008 700,000 99,308 94,800 4,508
08-23-2005 08-23-2008 100,000 100,000 97,438 2,562
08-26-2005 08-26-2008 500,000 500,000 488,361 11,639
10-31-2005 10-31-2008 600,000 600,000 244,878 355,122
02-23-2006 02-23-2009 600,000 600,000 578,712 21,288
04-21-2006 04-21-2009 750,000 750,000 729,573 20,427
08-10-2006 08-10-2009 1,500,000 1,500,000 1,475,663 24,337
01-30-2007 01-30-2010 350,000 350,000 343,365 6,635
02-09-2007 02-09-2010 350,000 350,000 344,162 5,838
06-21-2007 06-21-2010 650,000 650,000 646,500 3,500
-----------
Carrying Value $ 455,856
-----------
11
At June 30, 2007, the following derivative liabilities related to
common stock Warrants and embedded derivative instruments were
outstanding:
Number of Exercise Value - Value -
Issue Date Expiry Date Warrants Price Per Issue Date June 30,
Share 2007
- ---------------------------------------------------------------------
03-30-2005 03-30-2010 740,000 $0.085 $673,400 $ -
05-25-2005 05-25-2010 700,000 0.085 693,000 -
08-23-2005 08-23-2010 100,000 0.085 31,000 -
08-26-2005 08-26-2010 500,000 0.090 145,000 -
10-31-2005 10-31-2010 600,000 0.100 6,000 -
02-23-2006 02-23-2011 600,000 0.050 2,081 -
04-21-2006 04-21-2011 30,000,000 0.050 363,005 22
08-10-2006 08-10-2013 15,000,000 0.050 22,196 19
01-30-2007 01-30-2014 5,000,000 0.010 8,321 1,121
02-09-2007 02-09-2014 5,000,000 0.010 8,019 1,130
06-21-2007 06-21-2014 10,000,000 0.009 1,945 1,430
----------
Fair value of freestanding derivative instrument
liabilities for warrants $3,722
----------
Face Amount Value -
-Convertible Value - June 30,
Issue Date Expiry Date Notes Issue Date 2007
- --------------------------------------------------------------------
05-25-2005 05-25-2008 $700,000 $9,451,556 $ 160,929
08-23-2005 08-23-2008 100,000 413,333 166,888
08-26-2005 08-26-2008 500,000 1,928,889 913,151
10-31-2005 10-31-2008 500,000 372,000 1,115,006
02-23-2006 02-23-2009 600,000 1,487,973 1,156,938
04-21-2006 04-21-2009 750,000 1,758,445 1,471,880
08-10-2006 08-10-2009 1,500,000 1,975,842 3,157,697
01-30-2007 01-30-2010 350,000 512,077 535,363
02-09-2007 02-09-2010 350,000 494,584 533,916
06-21-2007 06-21-2010 650,000 1,047,596 978,128
-----------
Fair value of bifurcated embedded derivative instrument
liabilities associated with the convertible notes $10,189,896
-----------
Total derivative financial instruments $10,193,618
===========
12
(7) 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 June 30, 2007, the Company
incurred a net loss of $5,667,016 and has a working capital deficit, an
accumulated deficit and a stockholders' deficit of $486,367, $40,125,753
and $10,903,684 at June 30, 2007.
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.
(8) Subsequent Events
Through July 24, 2007, the Company issued 175,309,374 shares of common
stock for as follows:
Services: 76,000,000
Note conversions: 99,309,374
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended June 30, 2007, Compared with three months ended
June 30, 2006, and Nine Months ended June 30, 2007, compared with Nine
months ended June 30,2006.
GENERAL
The Company is now headquartered at 7284 W. Palmetto Park Rd., Suite
207, Boca Raton, Florida 33433 since January 1, 2004. The Company
intends to move to a new, larger location by the end of the fiscal
year 2006. The Company has elected to outsource the manufacturing of
all its products at this time.
Results of Operations
- ---------------------
For the quarter ended June 30, 2007, Sales increased to $739,170 from
$32,729. This increase is attributable to the Company's providing of
financial consulting services which accounted for $700,000 of the
quarterly revenue. The Company has advised seven public companies
over the last nine months on investment relations and ancillary
management techniques. For the Nine months ended June 30, 2007 sales
increased to $1,416,899 from $178,697, for the nine months ending
June 30, 2006. The increase is attributable to the Company's providing
of financial consulting services which accounted for $1,300,000 of the
nine months revenue. Sales of the Company's products were down by
approximately $60,000 on a comparative nine month basis. This decline
was due to market testing of several advertising campaigns which
required extensive re-editing and building of the Company's website,
which curtailed marketing efforts of the product lines.
Gross profit for the third quarter was $625,961 versus $(108,492) for
the year ago quarter. The increase was due to minimal expenses related
to the financial services revenue.
For the nine months ended June 30, 2007, Gross profit was $1,138,488
versus $(42,353) for the nine months ending June 30, 2006. The increase
was due to minimal expenses related to the financial services revenue.
14
Operating expenses (selling, general and administrative expenses) for
the 2007 quarter increased to $1,040,321 from $772,281, an increase
of 25.77%. The increase is due to several factors including, increased
legal fees, and consultants fees.
Operating expenses for the nine months increased from $2,056,618 to
$3,056,448, an increase of 32.82%. The increase for the nine months
is attributable to the Company's increased non cash compensation of
consultants and increased legal expenses related to foreign trademark
registrations and the acquisition of certain www.com website names.
Interest expense decreased from $484,224 in the year ago quarter to
$133,193 for this quarter. Interest expense for the nine month period
increased from $692,190 to $770,182. The increase is directly
attributable to the increase of the borrowings by the Company
from the four funds. At present the Company has borrowed a gross
amount of $6,840,000 through June 30, 2007, and the fund has sold
295,406,300 common shares and reduced the total outstanding debt by
$1,072,342 through the date of this filing.
Net loss for the 2007 period was $2,987,229 as opposed to a loss of
$955,076 in the prior year's quarter. The loss was substantially
higher because of much higher charges related to derivative instruments.
Net loss for the Nine months was $5,667,016 as compared to $10,667,767
for the nine months a year ago. The loss was substantially lower
because of lower charges related to derivative instruments.
For the third fiscal quarter the company reported a loss of $0.01 per
share versus a loss of $0.01 per share in the year ago quarter.
For the third quarter nine month comparison the Company lost $0.01
cents as compared to a loss of $0.28 in the year ago quarter.
Liquidity and Capital Resources
- -------------------------------
Cash on hand at June 30, 2007 was $1,367,266 and the Company had
working capital of $(486,368) at June 30, 2007.
Net cash used in operating activities was $1,316,742 during the nine
months ended June 30, 2007.
Net cash used in investing activities was $15,600 during the nine
months ended June 30, 2007.
Net cash provided by financing activities was $1,350,000 during
the nine months ended June 30, 2007, which consisted of borrowings
under convertible debentures.
The Company has affected a 5% price increase for all of its products.
The Company has sufficient cash resources, receivables and cash flow
to provide for all general corporate operations through the end of
the fiscal year.
15
Net cash provided by financing activities was $1,350,350 during the
nine months ended June 30, 2007, which consisted of $1,350,000 from
the convertible debentures.
The Company has affected a 5% price increase for all of its products.
The Company has sufficient cash resources, receivables and cash flow
to provide for all general corporate operations in the foreseeable
future.
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 June 30, 2007,
the Company incurred a net loss of $5,667,016 and has an accumulated
deficit of $40,125,753 at June 30, 2007.
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 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.
16
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
- -----------------------------------------
Recently issued accounting pronouncements and their effect on us are
discussed in the notes to the financial statements in our September
30, 2006 audited financial statements.
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 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.
17
PART II
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Item 1. LEGAL PROCEEDINGS
All legal proceedings disclosed in the prior filings have been settled
by the Company. The terms of the settlement were disclosed on From 8-K
as filed on December 12, 2004.
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. The litigation was settled whereby each party released
the other from its claims.
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 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
18
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: August 8, 2007 By:/s/Paul B. Kravitz
------------------------
Paul B. Kravitz
Chief Executive Officer
19