-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O1LoSlKVxkATwQ6+8J/FimQiBSJb0ELhXaOAIlNSd8ttsDH8z5BbI7SGfZSnbkKv qK2T8fdxzDlTp9ZIPNsoww== 0000943440-06-000077.txt : 20060217 0000943440-06-000077.hdr.sgml : 20060217 20060217095647 ACCESSION NUMBER: 0000943440-06-000077 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20060217 DATE AS OF CHANGE: 20060217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MED GEN INC CENTRAL INDEX KEY: 0001045707 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 650703559 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-29171 FILM NUMBER: 06627378 BUSINESS ADDRESS: STREET 1: 7284 W PALMETTO ROAD STREET 2: SUITE 106 CITY: BOCA RATON STATE: FL ZIP: 33433 BUSINESS PHONE: 5617501100 MAIL ADDRESS: STREET 1: 7284 W PALMETTO ROAD STREET 2: SUITE 106 CITY: BOCA RATON STATE: FL ZIP: 33433 10QSB/A 1 march05-10qa.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (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 March 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] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of March 30, 2005, 30,136,447 shares of common stock, .001 par value per share, were outstanding. The Company's stock trades on the OTCBB under the symbol "MDGN". Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] INDEX ----- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Restated Balance Sheet - March 31, 2005 (Unaudited) Statements of Operations - Three months ended March 31,2005 and 2004 and Six Months ended March 31,2005 and 2004 (Unaudited) Statements of Cash Flows - Six months ended March 30, 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 March 31, 2005 (Restated) (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 644,665 Accounts receivable 206,143 Inventory 116,218 Other current assets 5,700 ------------- Total Current Assets 972,726 ------------- Property and Equipment, net 39,081 ------------- Other Assets Deferred loan costs 112,000 Deposits and other 38,157 ------------- 150,157 ------------- $ 1,161,964 ============= LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current Liabilities Accounts payable and accrued expenses $ 51,844 Notes payable - related parties 405,000 ------------- Total Current Liabilities 456,844 ------------- Derivative financial instruments 10,068,111 ------------- Convertible debentures - ------------- Stockholders' (Deficit) Preferred stock, $.001 par value, 5,000,000 shares authorized - Series A 8% cumulative, convertible, 1,500,000 shares authorized - Undesignated, 3,500,000 shares authorized - Common stock, $.001 par value, 245,000,000 shares authorized, 30,136,447 shares issued and outstanding 30,136 Paid in capital 14,984,148 Receivable for common stock (35,000) Accumulated (deficit) (24,342,275) ------------- (9,362,991) ------------- $ 1,161,964 ============= See accompanying note to the financial statements. 4 Med Gen, Inc. Statements of Operations For the Three Months and Six Months Ended March 31, 2004 and 2005 (Unaudited)
Three Months Six Months -------------------------- -------------------------- 2004 2005 2004 2005 ----------- ----------- ----------- ------------ (Restated) (Restated) Net sales $ 244,937 $ 201,471 $ 512,201 $ 483,644 Cost of sales 144,083 71,449 248,189 171,089 ----------- ----------- ----------- ------------ Gross profit 100,854 130,022 264,012 312,555 ----------- ----------- ----------- ------------ Operating expenses: Non cash stock compensation 48,750 185,640 135,750 305,640 Selling, general and administrative expenses 325,994 309,479 811,071 627,156 ----------- ----------- ----------- ------------ 374,744 495,119 946,821 932,796 ----------- ----------- ----------- ------------ (Loss) from operations (273,890) (365,097) (682,809) (620,241) ----------- ----------- ----------- ------------ Other (income) expense: Interest expense 22,595 4,806 71,335 9,060 Non cash interest expense - 180,000 - 180,000 Derivative instrument expense - 9,328,111 - 9,328,111 Other expenses 6,250 - 12,500 - ----------- ----------- ----------- ------------ 28,845 9,512,917 83,835 9,517,171 ----------- ----------- ----------- ------------ (Loss) before income taxes (302,735) (9,878,014) (766,644) (10,137,412) Income taxes - - - - ----------- ----------- ----------- ------------ Net (loss) $ (302,735) $(9,878,014) $ (766,644) $(10,137,412) =========== =========== =========== ============ Per share information - basic and fully diluted: Weighted average shares outstanding 5,821,914 29,480,891 4,496,172 28,194,689 =========== =========== =========== ============ Net (loss) per share $ (0.05) $ (0.34) $ (0.17) $ (0.36) =========== =========== =========== ============
See accompanying note to the financial statements. 5 Med Gen, Inc. Statements of Cash Flows For the Six Months Ended March 31, 2004 and 2005 (Unaudited)
2004 2005 ----------- ----------- Cash flows from operating activities: Net cash (used in) operating activities $ (467,932) $ (566,030) ----------- ----------- Cash flows from investing activities: Net cash (used in) investing activities - - ----------- ----------- Cash flows from financing activities: Borrowing (repayment) of related party notes (184,800) 230,000 Proceeds from option exercise 461,232 101,987 Proceeds from convertible debentures - 665,000 Proceeds from issuance of common stock 400,000 - ----------- ----------- Net cash provided by financing activities 676,432 996,987 ----------- ----------- Net increase in cash 208,500 430,957 Beginning - cash and cash equivalents 90,791 213,708 ----------- ----------- Ending - cash and cash equivalents $ 299,291 $ 644,665 =========== ===========
See accompanying note to the financial statements. 6 MED GEN, INC. NOTES TO FINANCIAL STATEMENTS MARCH 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, 2004, and for the two years then ended, including notes thereto included in the Company's Form 10-KSB. The financial statements for the 2005 peiods have been restated to reflect the correction of an error as discussed in Note 10. No other changes have been made. (2) Earnings Per Share The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods when anti-dilutive commons stock equivalents are not considered in the computation. (3) Inventory Inventory is stated at the lower of cost, determined on a first in, first out basis, or market value. Inventory consists principally of finished goods and packaging materials. (4) Notes Payable - Related Parties During the period ended March 31, 2005, the Company repaid $181,000 in notes due to related parties and borrowed an additional $411,000 from related parties with interest at 8% per annum. The balance due was $405,000 at March 31, 2005. During April 2005 the Company repaid the $405,000 (see Note 8). (5) Income Taxes The Company accounts for income taxes under SFAS 109, "Accounting for Income Taxes", which requires use of the liability method. SFAS 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled, or realized. 7 The Company's deferred tax asset of approximately $2,100,000 resulting from net operating loss carryforwards aggregating approximately $6,200,000 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. (6) Stockholders' (Deficit) During October 2004 the Company issued 2,000,000 shares of common stock to an officer pursuant to the exercise of options granted in October 2004 at $.10 per share. The fair value of the shares issued was $.16 per share. The difference between the fair value and the exercise price of $120,000 has been charged to operations during the period ended December 31, 2004. In addition, the Company recorded a receivable for common stock of $200,000 for the amount due for the shares. During the quarter ended March 31, 2005, the Company reduced the amount receivable for these shares to the current market price of its Common stock. This reduction resulted in a charge to operations of $117,640 during the quarter ended March 31, 2004. This officer remitted an aggregate of $101,987 to the Company related to the receivable for common stock during the period from October 1, 2004, through March 31, 2005. At March 31, 2005, $35,000 remained receivable for common stock. During January through March 2005, the Company issued 2,000,000 shares of common stock to a related party lender described in Note 4, for future loans to be made to the Company pursuant to a line of credit. The fair value of these shares of $180,000 was to be charged to operations as additional interest over the term of the line of credit. The Company recorded a charge to operations for the value of the shares as the line of credit was terminated at March 31, 2005, and the balance of $405,000 was repaid in April 2005. In addition, the Company issued 200,000 shares of common stock to a consultant and 1,000,000 shares to a related party described in Note 4 for services. The fair value of these shares of $68,000 was charged to operations. During January 2005 the Company filed a Form SB-2 registration statement covering the 8,000,000 common shares described in Note 7 and 2,200,000 of the common shares described above. Stock-based Compensation During October 2004 the Company issued 2,000,000 options to purchase shares of common stock to an officer. Compensation costs charged to operations aggregated $120,000 for these options. SFAS 123 requires the Company to provide proforma information regarding net income and earnings per share as if compensation cost for the Company's stock option plans had been determined in accordance with the fair value based method prescribed in SFAS 123. The fair value of the option grants is estimated on the date of grant utilizing the Black-Scholes option pricing model with the following weighted average assumptions for grants during the period ended March 31, 2005: expected life of options of 5 years, expected volatility of 121%, risk-free interest rate of 3% and no dividend yield. The weighted average fair value at the date of grant for options granted during the period ended March 31, 2005, approximated $.14 per option. These results may not be representative of those to be expected in future years. 8 Under the provisions of SFAS 123, the Company's net income (loss) and earnings (loss) per share would have been reduced (increased) to the proforma amounts indicated below: Net (loss) As reported $(10,137,412) Proforma $(10,297,412) Basic and diluted (loss) per share As reported $(.36) Proforma $(.37) A summary of stock option activity is as follows:
Weighted Weighted Number average average of exercise fair shares price value ------------ -------- ------ Balance at September 30, 2004 934,112 $1.33 $1.33 Granted 2,000,000 $1.23 $1.23 Exercised/Forfeited (2,750,260) $1.23 $1.23 ------------ Balance at March 31, 2005 183,852 $1.31 $1.31 ============
The following table summarizes information about fixed-price stock options at March 31, 2005:
Outstanding Exercisable ----------- ----------- Weighted Weighted Weighted- Average Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price ---------- ----------- ---- ----- ----------- ----- $1.01 31,852 2.0 years $1.01 31,852 $1.01 $1.25 100,000 5.0 years $1.25 100,000 $1.25 $1.31 52,000 5.0 years $1.31 52,000 $1.31 ---------- ---------- 183,852 183,852 ========== ==========
(7) Commitments, Concentrations and Contingencies During the period ended March 31, 2005, the Company derived 46%, 18% and 10% of its total sales from three customers. At March 31, 2005, $121,403 is due from these customers. 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: 9 The Company would make cash payments to Global aggregating $200,000 through March 1, 2005, and would issue to Global an aggregate of 8,000,000 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. The Company has agreed to file a registration statement covering an aggregate of 10,200,000 shares of common stock on or before January 15, 2005, and should it not do so an additional 500,000 shares of common stock would have been due to Global. The Company believes that it has complied with the filing requirement. Global will be required to execute proxies giving the voting rights of the shares issuable to an officer of the Company. Through March 31, 2005, the Company made payments aggregating $200,000 to Global. 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. During January 2005 and effective February 16, 2005, the Company entered into a professional services agreement with an entity acting as an independent contractor to distribute its products in the United States. As compensation the Company agreed to pay a commission of the greater of 5% of invoiced shipments or $105,000 for the year ended December 31, 2005 and $144,000 for each of the years ended December 31, 2006 and 2007. The agreement may be terminated by either party for any reason within 6 months of the date of the agreement. Thereafter the Company may terminate the agreement with 6 months notice. During January 2005 the Company entered into a one year consulting agreement with an entity to assist the Company with its business plan and introduce the Company to potential investors. Should the Company decide to enter into a funding transaction as a result of an introduction by the consultant the consultant shall designate a registered broker Dealer to complete the transaction. The consultant shall receive a cash fee of 10% of the funds procured and warrants to purchase common stock equal to 10% of the toal shares issued for a period of 5 years at 105% of the price at which the shares are sold. The shares underlying the warrants are subject to certain registration rights. (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 March 31, 2005, the Company incurred a net loss of $10,137,412 and has an accumulated deficit of $24,342,275 at March 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. 10 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 April 2005 the Company filed a definitive proxy to increase in the authorized common shares to 245,000,000 and authorized preferred shares to 5,000,000. (10) Correction of an Error and Restatements During December 2005 the Company determined that the certain convertible debt which had been accounted for as conventional convertible debt should have been accounted for using the guidance of EITF 00-19 "Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company's Own Common Stock" (see below). The accompanying financial statements have been restated to reflect the above correction. The adjustments increased the net loss for the three months and six months ended March 31, 2005, as previously reported from $(549,903) and $(809,301) to $(9,878,014) and $(10,137,412) or $(.34) and $(.36) per share. In addition, the liability for convertible debentures previously reported on the balance sheet were reduced $740,000 to $0 and the amount reported on the balance sheet for derivative instruments was increased from $0 to $10,068,111. 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. 11 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 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. 12 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 re-classified. 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. 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. 13 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 $673,400, 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 March 31, 2005, using the Black-Scholes 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 $688,200 at March 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. 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 $9,176,000. 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. 14 A summary of the Callable Secured Convertible Notes and derivative instrument liabilities at March 31, 2005, is as follows: Callable Secured Convertible Notes; 8% per annum; due March 30, 2008 $ 740,000 Less: face amount of Notes converted - ---------- 740,000 Less: unamortized discount related to warrants and bifurcated embedded derivative instruments (740,000) Total carrying value at March 31, 2005 $ - ========== 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 March 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 March 31, 2005, the following derivative liabilities related to common stock Warrants and embedded derivative instruments were outstanding: Exercise Value- Price Per Value-Issue March 31, Issue Date Expiry Date Share Date 2005 - --------------------------------------------------------------------------- 03-30-2005 03-30-2010 740,000 warrants $0.085 $673,400 $ 688,200 --------- Fair value of freestanding derivative instrument liabilities for warrants $ 688,200 --------- Value- Value - Issue March 31, Issue Date Expiry Date Date 2005 - ---------------------------------------------------------------------------- 03-30-2005 03-30-2008 $617,676 convertible notes $9,176,000 $9,379,811 ---------- Fair value of bifurcated embedded derivative instrument liabilities associated with the above convertible notes $9,379,811 ---------- Total derivative financial instruments $10,068,111 =========== 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------- Three months ended March 31, 2005 Compared with Three months ended March 31, 2004 and Six Months ended March 31, 2005 Compared with Six months ended March 31, 2004 - --------------------------------------------- GENERAL - ------- The Company is now headquartered at 7284 W. Palmetto Park Rd., Suite 207, Boca Raton, Florida 33433 since January 1,2004. It does not foresee any need to further expand its 2200 sq. ft. corporate facility. The Company has elected to outsource the manufacturing of all its products at this time. Results of Operations - --------------------- For the 2004 second fiscal quarter ended March 31, 2005, Sales decreased 17.75% to $201,471 from $244,937.This decrease was primarily caused by Eckerd's drugstores merger with CVS. CVS ceased ordering Snorenz at the end of December 2004. The Company has attempted to re-open this account by presenting the product to the category buyer and the decision by CVS is still pending. The Company is hopeful that a positive decision for its product lines will occur by June 1, 2005. Also affecting Sales were the overall consumer demand for the products in this category "Cough and Cold" showed a sharp decline. For the Six months ended March 31, 2005 sales decreased 5.58% to $483,644 from $512,201,for the six months ending March 31, 2004. The decrease is attributable to a decline in overall customer demand. Gross profit for the second quarter was $130,022 versus $100,854 for the year ago quarter, an increase of 22.44%. The increase was due to an increase in the wholesale price of the products, and the shipping of previously manufactured inventory. For the six months ended March 31, 2005 Gross profit was $312,555 versus $264,012 for the six months ending March 31, 2004, an increase of 15.54%. This increase is attributable to an increase in the wholesale prices of the products and the shipping of previously manufactured inventory. Gross profit margins for the quarter increased to 64.53% of sales up from 41.17% in the previous year ago quarter. The increase was due to increased wholesale prices and the shipping of previously manufactured inventory. Gross profit margins for the Six Months ending March 31,2005 increased to 64.62% of sales up from 51.54% for the six months ending March 31, 2004. The increase was due to increased wholesale prices and the shipping of previously manufactured inventory. Operating expenses (selling, general and administrative expenses) decreased to $309,479 from $325,994, a decrease of 5.07%. The small decrease is due to several factors including, decreased legal fees, consultants fees and overall operating costs. Operating expenses for the six months decreased from $811,071 to $627,156, a decrease of 22.68%. The decrease for the six months is attributable to the Company's continued cost cutting program; also, the Company has bought remnant advertising time and saved significant amounts in order to effectively advertise the products on a reduced operating budget. 16 Operating loss was $365,097 as opposed to a loss of $273,890 in the prior year's quarter. The loss was higher because of a non- cash stock compensation adjustment of $185,640. Operating loss for the Six months was $620,241 as compared to $682,809 for the six months a year ago. The loss was about the same because non cash compensation adjustments offset the decrease in selling, general and administrative expenses. Interest expense decreased from $22,595 in the year ago quarter to $4,806 for this quarter. This was due to reducing most of the secured lender's outstanding debt which ultimately was fully paid in early April 2005. Interest expense decreased for the six month period from $71,335 to $9,060. The decrease is directly attributable to less borrowings from the secured lender. For the second fiscal quarter the company reported a loss of $0.34 per share versus a loss of $0.05 per share in the year ago quarter. For the six month period comparison the Company lost $0.36 during 2005 as compared to a loss of $0.17 during 2004. Liquidity and Capital Resources - ------------------------------- Cash on hand at March 31, 2005, was $644,655 and the Company had working capital of $515,882 at March 31, 2005. Net cash used in operating activities was $566,030 during the Six months ended March 31, 2005. Net cash used in investing activities was $-0- during the six months ended March 31, 2005. 17 Net cash provided by financing activities was $996,987 during the Six months ended March 31, 2005, which consisted of $101,987 from the proceeds from the sale of management options and $230,000 of net draw downs on the credit facility and $665,000 from the first tranche of the convertible debenture. The Company has affected a 5% price increase for all of its products. The Company has also eliminated one-time burdens of legal, computer and other non-recurring expenses. The Company has sufficient cash resources, receivables and cash flow to provide for all general corporate operations in the foreseeable future. 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 March 31, 2005, the Company incurred a net loss of $10,137,412 and has an accumulated deficit of $24,342,275 at March 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 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. 18 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, 2004 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, 2004 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. 19 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. 20 PART II ------- 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. 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 April 21st, 2005 the Company filed its Definitive Proxy Statement requesting an increase of the authorized shares from 50,000,000 to 250,000,000. The results of the proxy vote which was scheduled for May 22, 2005 may be extended, if necessary to comply with any additional SEC requirements. 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 21 - ------------------------------------------------------------------- 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 16, 2006 By: /s/Paul B. Kravitz -------------------------------- Paul B. Kravitz Chief Executive Officer 22 EX-31.1 2 march05qa-ex311.txt [Exhibit 31.1] CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)/ RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED I, Paul B. Kravitz, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB/A of Med Gen, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Not applicable] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 16, 2006 /s/ PAUL B. KRAVITZ --------------------------------- Paul B. Kravitz Chief Executive Officer EX-31.2 3 march05qa-ex312.txt [Exhibit 31.2] CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)/ RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED I, Jack Chien, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB/A of Med Gen, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Not applicable] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 16, 2006 /s/ JACK CHIEN ------------------------------ Jack Chien Chief Financial Officer EX-32.1 4 march05qa-ex321.txt [Exhibit 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 In connection with the Quarterly Report on Form 10-QSB/A of Med Gen, Inc. (the "Company") for the fiscal year ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Paul B. Kravitz, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 16, 2006 /s/ PAUL B. KRAVITZ --------------------------- Paul B. Kravitz Chief Executive Officer EX-32.2 5 march05qa-ex322.txt [Exhibit 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 In connection with the Quarterly Report on Form 10-QSB/A of Med Gen, Inc. (the "Company") for the fiscal year ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Jack Chien, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 16, 2006 /s/ JACK CHIEN ----------------------- Jack Chien Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----