-----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, FD7hQv0eLPE+F5GmCPKoufIRDniKtrO5ID/eoSbM1BtC24ujV3p4RcCUS3bIEMFg VjrKa1LXsXHx3rH3e2+zIw== 0000943440-07-000127.txt : 20070227 0000943440-07-000127.hdr.sgml : 20070227 20070227112237 ACCESSION NUMBER: 0000943440-07-000127 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070227 DATE AS OF CHANGE: 20070227 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: 07651811 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 dec06-10qa.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2006 ----------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT For the transition period from ________________ to ______________ Commission File Number 000-29171 --------- MED GEN, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Nevada 65-0703559 - ------------------------ ------------------- (State of incorporation) (IRS Employer Identification No.) 7284 W. Palmetto Park Road, Suite 207, Boca Raton, FL 33433 ----------------------------------------------------------- (Address of principal executive offices) (561) 750-1100 --------------------------- (Issuer's Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12B-2). Yes [ ] No [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of December 31, 2006, 289,311,265 shares of common stock, .001 par value per share, were outstanding. INDEX ----- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheet - December 31, 2006 (Unaudited) Statements of Operations - Three months ended December 31, 2006 and 2005 (Unaudited). Statements of Cash Flows - Three months ended December 31, 2006 and 2005 (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 Med Gen, Inc. Balance Sheet December 31, 2006 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 808,165 Accounts receivable, net of reserve of $15,196 39,009 Inventory 95,126 Other current assets 5,700 ------------- Total Current Assets 948,000 ------------- Property and Equipment, net 52,125 ------------- Other Assets Deferred financing fees 146,263 Deposits and other 199,124 ------------- $ 1,345,512 ============= LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current Liabilities Accounts payable and accrued expenses $ 1,303,070 Accrued litigation judgment 591,676 ------------- Total Current Liabilities 1,894,746 ------------- Derivative financial instruments 6,628,624 ------------- Convertible debentures 299,870 ------------- Redeemable common shares 200,000 ------------- 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, 289,311,265 shares issued and outstanding 289,311 Paid in capital 27,510,725 Accumulated (deficit) (35,477,764) ------------- (7,677,728) ------------- $ 1,345,512 ============= See accompanying notes to the financial statements. 3 Med Gen, Inc. Statements of Operations For the Three Months Ended December 31, 2005 and 2006 (Unaudited)
2005 2006 ----------- ----------- Net sales $ 100,148 $ 181,753 Cost of sales 28,150 50,707 ----------- ----------- Gross profit 71,998 131,046 ----------- ----------- Operating expenses: Selling, general and administrative expenses - non cash stock compensation - not included in selling, general and administrative expenses below 55,700 313,500 Selling, general and administrative expenses 705,222 540,957 ----------- ----------- 760,922 854,457 ----------- ----------- (Loss) from operations (688,924) (723,411) ----------- ----------- Other (income) expense: Derivative instrument (income) expense (49,717) 349,401 Interest income (3,888) (6,937) Interest expense 144,580 85,390 ----------- ----------- 90,975 427,854 ----------- ----------- Net (loss) $ (779,899) $(1,151,265) =========== =========== Per share information - basic and fully diluted: Weighted average shares outstanding 6,739,173 273,622,622 =========== =========== Net (loss) per share $ (0.12) $ (0.00) =========== ===========
See accompanying notes to the financial statements. 4 Med Gen, Inc. Statements of Cash Flows For the Three Months Ended December 31, 2005 and 2006 (Unaudited)
2005 2006 ----------- ----------- Cash flows from operating activities: Net cash (used in) operating activities $ (745,128) $ (525,843) ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (9,174) (15,600) ----------- ----------- Net cash (used in) investing activities (9,174) (15,600) ----------- ----------- Cash flows from financing activities: Proceeds from convertible debentures 575,000 - ----------- ----------- Net cash provided by financing activities 575,000 - ----------- ----------- Net increase in cash (179,302) (541,443) Beginning - cash balance 760,934 1,349,608 ----------- ----------- Ending - cash balance $ 581,632 $ 808,165 =========== ===========
See accompanying notes to the financial statements. 5 MED GEN, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 (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) During the period from October 2006 through December 2006, the Company issued an aggregate of 55,300,000 shares of common stock for services rendered to a significant shareholder. The shares were valued at their fair market value of $313,500 which was charged to operations during the period. During the period from October 2006 through December 2006 the Company issued an aggregate of 2,161,381 shares of common stock for the conversion $7,089 of the notes described on Note 6. (5) Commitments, Concentrations and Contingencies During the period ended December 31, 2006, the Company performed consulting services for fees aggregating $125,999 for a single customer. 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- 6 filed for the third time by the plaintiffs after two prior dismissals by the Federal courts for failure to state a cause of action. On August 31, 2004 a verdict was rendered in favor of the plaintiffs and they were awarded a judgment in the sum of $2,501,191. The Company initially intended to appeal the verdict, however on December 3, 2004, the Company and Global settled the matter as follows: The Company would make cash payments to Global aggregating $200,000 through March 1, 2005, and would issue to Global an aggregate of 400,000 shares of common stock. The shares to be issued were valued at their fair market value of $1,120,000. The Company has recorded an accrual of $200,000 for the cash payments due and a stock subscription of $1,120,000 for the common shares issuable at September 30, 2004, and charged $1,320,000 to operations for the settlement during the year ended September 30, 2004. The Company has agreed to file a registration statement covering an aggregate of 510,000 shares of common stock on or before January 15, 2005, and should it not due so an additional 25,000 shares of common stock would be due to Global. Global will be required to execute proxies giving the voting rights of the shares issuable to an officer of the Company. A dispute between the parties arose and the settlement agreement was set aside by the Court and no new settlement agreement has yet been reached. Through September 30, 2005, the Company made payments to Global aggregating $75,000. At September 30, 2005, the Company has recorded an accrual amounting $2,426,191 (the original judgment of $2,501,191 less the payments made of $75,000) plus post judgment interest at 7% of $169,800. During the year ended September 30, 2005, the Company charged $1,181,191 to operations for the difference between the settlement recorded during 2004 and the total judgment awarded. The Company is currently attempting to negotiate a new settlement agreement with Global. In addition, the Company issued 400,000 shares of its common stock which were held by the Company pending issuance to Global. These shares were cancelled when the settlement was set aside. During the 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 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 $591,676 at December 31, 2006. In December 2005, the Company filed litigation against CVS, Inc. The Company sold CVS in excess of $140,000 dollars of goods and received payment of approximately $26,000 during an 18 month period. CVS terminated the product in late May 2005 and claims the Company owes them $77,000. Management cannot determine the outcome of this litigation at this time. During the periods covered by these financial statements the Company issued shares of common stock and subordinated debentures without registration under the Securities Act of 1933. Although 7 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 August 10, 2006, the Company entered into a series of eight Securities Purchase Agreements with four accredited investors ("Note Holders") for the sale of an aggregate of $5,490,000 of Callable Secured Convertible Notes (the "Convertible Notes") and warrants to purchase up to 48,240,000 shares of its common stock (the "Warrants"). A ninth agreement was entered into on January 31, 2007 for the sale of a further $350,000 of Convertible Notes. 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) a fixed price which, depending on the note, is between $0.04 and $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. As of December 31, 2006, that average was $0.00403, resulting in an effective conversion price as of December 31, 2006 of $0.00242. 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. In connection with the sale of the ninth tranche on January 31, 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 warrants are exercisable for a period of five or seven years from the date of issuance and have exercise prices that range from $0.05 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 8 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. The Company accrues any 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 indeterminate, the embedded 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 option 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. In certain instances, the interest paid to date may equal or exceed the interest accrued to date under the effective interest method, resulting in the Note having no carrying value. A summary of the 8% Callable Secured Convertible Notes at December 31, 2006, is as follows: Carrying Value - Principal Unamortized December 31, Issue Date Due Date Face Amount Outstanding Discount 2006 - ----------------------------------------------------------------------------- 03-30-2005 03-30-2008 $ 740,000 $ 0 $ 0 $ - 05-25-2005 05-25-2008 700,000 227,050 227,050 0 08-23-2005 08-23-2008 100,000 100,000 100,000 0 08-26-2005 08-26-2008 500,000 500,000 500,000 0 10-31-2005 10-31-2008 600,000 600,000 300,129 299,870 02-23-2006 02-23-2009 600,000 600,000 600,000 0 04-21-2006 04-21-2009 750,000 750,000 750,000 0 08-10-2006 08-10-2009 1,500,000 1,500,000 750,000 0 ------------ Carrying Value $299,870 ------------ 9 At December 31, 2006, the following derivative liabilities related to common stock Warrants and embedded derivative instruments were outstanding: Exercise Value- Price Per Value December 31, Issue Date Expiry Date Warrants Share Issue Date 2006 - ------------------------------------------------------------------------- 03-30-2005 03-30-2010 740,000 $0.085 $673,400 $ 4 05-25-2005 05-25-2010 700,000 0.085 693,000 5 08-23-2005 08-23-2010 100,000 0.085 31,000 1 08-26-2005 08-26-2010 500,000 0.090 145,000 5 10-31-2005 10-31-2010 600,000 0.010 6,000 6 02-23-2006 02-23-2011 600,000 0.050 2,081 51 04-21-2006 04-21-2011 30,000,000 0.050 363,005 2,945 08-10-2006 08-10-2013 15,000,000 0.050 22,196 1,882 ------------ Fair value of freestanding derivative $4,899 instrument liabilities for warrants ------------ Face Amount Value - - Convertible Value - December 31, Issue Date Expiry Date Notes Issue Date 2006 - ------------------------------------------------------------------------- 05-25-2005 05-25-2008 $700,000 9,451,556 275,370 08-23-2005 08-23-2008 $100,000 413,333 129,750 08-26-2005 08-26-2008 $500,000 1,928,889 796,926 10-31-2005 10-31-2008 $500,000 372,000 949,534 02-23-2006 02-23-2009 $600,000 1,487,973 933,359 04-21-2006 04-21-2009 $750,000 1,758,445 1,172,843 08-10-2006 08-10-2009 $1,500,000 1,975,842 2,370,842 ---------------- Fair value of bifurcated embedded $6,628,624 derivative instrument liabilities ---------------- associated with the convertible notes Total derivative financial instruments $6,633,523 ================ 10 (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 December 31, 2006, the Company incurred a net loss of $1,151,265 and has a working capital deficit, an accumulated deficit and a stockholders' deficit of $946,746, $35,477,764 and $7,677,728 at December 31, 2006. 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. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended December 31, 2006 Compared with three months ended December 31, 2005 - --------------------------------------------------------------------- GENERAL The Company is headquartered at 7284 W. Palmetto Park Rd., Suite 207,Boca Raton, Florida 33433.The Company has elected to outsource all the manufacturing of its products under protective agreements at this time. Results of Operations - --------------------- For the 2006 first fiscal quarter ended December 31, 2006, Sales increased 81.14 % to $181,753 from $100,148.This increase is attributable principally to a one time consulting fee of $125,000. In addition, the Company launched its new updated website that offers a multitude of products. The Company has concentrated its efforts on increasing the "hits" to the website and this has equated into increased sales. During the quarter the sales on its website slowly increased. Management is exploring other various methods to increase traffic flow as a result of its Direct Marketing Programs and will launch several joint venture programs as well as its own TV programs in the next quarter. Gross profit for the first quarter was $ 131,046 versus $71,998 for the year ago quarter, an increase of 45.06%. The increase was due to the consulting fee described above. Gross profit margins for the quarter increased to 72.10% of sales up from 71.89 % in the previous year ago quarter. The increase was due to consulting fee described above. Operating expenses (selling, general and administrative expenses) decreased $317,677 to $540,957 from $705,222, a decrease of 23.30%. The decrease is due to several factors that include, decreased legal fees, lower operating costs, reduced travel expenses and reduced entertainment expenses. Management believes that operating expenses will continue at this modest level until sales increases force the company to increase personnel. Operating loss was $723,411 as opposed to $688,924 in the prior year's quarter. Interest expense decreased from $144,580 in the year ago quarter to $85,390 for this quarter. The Company secured a six month interest waiver from its debenture holders and issued them 30,000,000 warrants in lieu of interest payments to conserve cash. For the first fiscal quarter the company reported a net loss of $1,151,265 ($0.00) per share versus a loss of $779,899 ($0.12) per share in the year ago quarter. Liquidity and Capital Resources - ------------------------------- Cash on hand at December 31, 2006 was $808,165 and the Company had a working capital deficit of $946,746 at December 31, 2006. Net cash used in operating activities was $525,843 during the three months ended December 31, 2006. Net cash used in investing activities was $15,600 during the three months ended December 31, 2006. 12 Net cash provided by financing activities was $-0- during the quarter ended December 31, 2006. The Company expects to introduce its new product the Un-Diet Program in the March quarter. The Company believes it has sufficient cash resources, receivables and cash flow to provide for all general corporate operations in the foreseeable future. However, if the company has a successful test programs with its newest TV commercials it might want to increase its budget for the purchase of additional air time. Thus, in order to avoid any disruption in business, the Company plans to raise additional capital from its present lender. Accordingly, should we be unable to fund our expenses through our existing assets or cash, we may be required to issue shares of our common stock, which will dilute the interest of current shareholders. Moreover, we may still need additional financing through traditional bank financing or a debt or equity offering; however, because we have limited revenues, and a poor financial condition, we may be unsuccessful in obtaining such financing or the amount of the financing may be minimal and therefore inadequate to implement our business plans. In the event that we do not receive financing or our financing is inadequate, we may have to liquidate our business and undertake any or all of the following actions: * Significantly reduce, eliminate or curtail our business, operating and research and development activities so as to reduce operating costs; * Sell, assign or otherwise dispose of our assets, if any, to raise cash or to settle claims by creditors; * Pay our liabilities in order of priority, if we have available cash to pay such liabilities; * If any cash remains after we satisfy amounts due to our creditors, distribute any remaining cash to our shareholders in an amount equal to the net market value of our net assets; * File a Certificate of Dissolution with the State of Nevada to dissolve our corporation and close our business; * Make the appropriate filings with the Securities and Exchange Commission so that we will no longer be required to file periodic and other required reports with the Securities and Exchange Commission, if, in fact, we are a reporting company at that time; and * Make the appropriate filings with the National Association of Security Dealers to affect a delisting of our stock. Based upon our current assets, however, we would not have the ability to distribute any cash to our shareholders. If we have any liabilities that we are unable to satisfy and we qualify for protection under the U.S. Bankruptcy Code, we may voluntarily file for reorganization under Chapter 11 or liquidation under Chapter 7. Our creditors may also file a Chapter 7 or Chapter 11 bankruptcy action against us. If our creditors or we file for Chapter 7 or Chapter 11 bankruptcy, our creditors will take priority over our shareholders. If we fail to file for bankruptcy under Chapter 7 or Chapter 11 and we have creditors; such creditors may institute proceedings against us seeking forfeiture of our assets, if any. We do not know and cannot determine which, if any, of these actions we will be forced to take. If any of these foregoing events occur, you could lose your entire investment in our shares. To date, we have funded our activities principally from loans from related parties and loans from third party lenders. Contractual Obligations and Commercial Commitments We have no contractual obligations, including lease obligations, apart from agreements in the normal course of our business. 13 Basis of Reporting - ------------------ The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced a significant loss from operations including the settlement of certain litigation. For the period ended December 31, 2006, the Company incurred a net loss of $1,151,265 and has a working capital deficit, an accumulated deficit and a stockholders' deficit of $946,746, $35,477,764 and $7,677,728 at December 31, 2006. 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. 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. 14 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. 15 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 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. As of the date of this report, the Company's management, including the President (principal executive officer) and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Our management, including our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our disclosure controls and procedures, as such terms are defined under rules 13a-15(e) and 15d-15(e) promulgated under Securities Exchange Act of 1934, as amended. Based on this assessment, our management concluded that our disclosure controls and procedures were effective as of the end period covered by this annual report. 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's management carried out its evaluation. 16 PART II Item 1. LEGAL PROCEEDINGS During May 2003 Global Healthcare Laboratories, Inc. (Global) made a claim against the Company for breach of contract under a master license agreement. Management contended that Global committed fraud and multiple breaches of the master license agreement and that the claim was without merit. The matter was re-filed for the third time by the plaintiffs after two prior dismissals by the Federal courts for failure to state a cause of action. On August 31, 2004 a verdict was rendered in favor of the plaintiffs and they were awarded a judgment in the sum of $2,501,191. The Company initially intended to appeal the verdict, however on December 3, 2004, the Company and Global settled the matter as follows: The Company would make cash payments to Global aggregating $200,000 through March 1, 2005, and would issue to Global an aggregate of 400,000 shares of common stock. The shares to be issued were valued at their fair market value of $1,120,000. The Company has recorded an accrual of $200,000 for the cash payments due and a stock subscription of $1,120,000 for the common shares issuable at September 30, 2004, and charged $1,320,000 to operations for the settlement during the year ended September 30, 2004. The Company has agreed to file a registration statement covering an aggregate of 510,000 shares of common stock on or before January 15, 2005, and should it not due so an additional 25,000 shares of common stock would be due to Global. Global will be required to execute proxies giving the voting rights of the shares issuable to an officer of the Company. A dispute between the parties arose and the settlement agreement was set aside by the Court and no new settlement agreement has yet been reached. Through September 30, 2005, the Company made payments to Global aggregating $75,000. At September 30, 2005, the Company has recorded an accrual amounting $2,426,191 (the original judgment of $2,501,191 less the payments made of $75,000) plus post judgment interest at 7% of $169,800. During the year ended September 30, 2005, the Company charged $1,181,191 to operations for the difference between the settlement recorded during 2004 and the total judgment awarded. The Company is currently attempting to negotiate a new settlement agreement with Global. In addition, the Company issued 400,000 shares of its common stock which were held by the Company pending issuance to Global. These shares were cancelled when the settlement was set aside. During the period ended June 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 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. In December 2005, the Company filed a litigation against CVS, Inc. The Company sold CVS in excess of $140,000 dollars of goods and received payment of approximately $26,000 during an 18 month period. CVS terminated the product in late May 2005 and claims the Company owes them $77,000 Management expects to recover fully in this litigation but cannot determine the possible outcome at this time. The Company and CVS will be entering into mutual releases and the litigation will be terminated within 30 days. 17 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 At December 31, 2006, $5,450,000 was borrowed by the Company and $1,212,949.30 was repaid through convertible debenture conversions into approximately 173,271,687 common shares leaving a balance owed to the lender of $4,237,050.70. On January 30th,2007 and February 10th, 2007 the Company borrowed an additional $350,000 dollars respectively, which increased the total outstanding debt as of the date of this filing to $4,937,050.70. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities Exchange Act of 1934, as amended 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities Exchange Act of 1934, as amended 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) On 10-7-2005, 10-31-2005, and 11-25-2004 a Form 8-K was filed. 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: February 26th, 2006 By: /s/Paul B. Kravitz ----------------------- Paul B. Kravitz Chief Executive Officer 19 EX-31.1 2 dec06qa-ex311.txt [Exhibit 31.1] CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Paul Kravitz, certify that: 1. I have reviewed this annual 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 small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer 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 small business issuer, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer'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 small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting. Date: February 26, 2007 By: /s/Paul Kravitz ------------------------------- Paul Kravitz Chief Executive Officer EX-31.2 3 dec06qa-ex312.txt [Exhibit 31.2] CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jack Chien, certify that: 1. I have reviewed this annual 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 small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer 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 small business issuer, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer'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 small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting. Date: February 26, 2007 By: /s/Jack Chien ----------------------------------- Jack Chien, Chief Financial Officer and Principal Accounting Officer EX-32.1 4 dec06qa-ex321.txt [Exhibit 32.1] CERTIFICATION 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 Annual Report of Med Gen, Inc. (the "Company") on Form 10-QSB/A for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report'), I, Paul B. Kravitz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. February 26, 2007 /s/ Paul B. Kravitz --------------------------- Paul B. Kravitz, Principal Executive Officer EX-32.1 5 dec06qa-ex322.txt [Exhibit 32.2] CERTIFICATION 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 Annual Report of Med Gen, Inc. (the "Company") on Form 10-QSB/A for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report'), I, Jack Chien, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. February 26, 2007 /s/ Jack Chien --------------------------- Jack Chien, Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----