-----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, MrYDqzOf1gUZoCFkOeLG0l9i5eTguYm4C9MsalPWSzEocKTlzRp1Vh3L9y+Ara9f ZdCsjx/LTDp3sdFfNoHCLQ== 0000943440-08-000168.txt : 20080508 0000943440-08-000168.hdr.sgml : 20080508 20080507184047 ACCESSION NUMBER: 0000943440-08-000168 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080508 DATE AS OF CHANGE: 20080507 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-29171 FILM NUMBER: 08811439 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 1 mar08-10q.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 March 31, 2008 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.) 7280 W. Palmetto Park Road, Suite 306, 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 31st, 2008, 3,778,301,476 shares of common stock, .001 par value per share, were outstanding. The Company's stock trades on the OTCBB under the symbol "MGEN". Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] INDEX ----- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheet - March 31, 2008 (Unaudited) Statements of Operations - Three months ended March 31, 2008 and 2007 and Six Months ended March 31, 2008 and 2007 (Unaudited) Statements of Cash Flows - Six months ended March 31, 2008 and 2007 (Unaudited). Notes to Financial Statements (Unaudited). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Controls and Procedures PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 2 MED GEN, INC. PART I - FINANCIAL INFORMATION Item 1. Financial Statements 3 Med Gen, Inc. Balance Sheet March 31, 2008 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 718,083 Accounts receivable, net of reserve of $ 15,196 32,304 Inventory 156,835 Other current assets 6,138 ----------- Total Current Assets 913,360 ----------- Property and Equipment, net 85,604 ----------- Other Assets Deferred financing fees 81,552 Deposits and other 45,089 ----------- $ 1,125,605 =========== LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current Liabilities Accounts payable and accrued expenses $ 274,604 Accrued registrations penalties 99,456 Accrued interest 214,624 Derivative financial instruments 22,798,121 Convertible debentures 6,391,006 Accrued litigation judgment 116,677 ----------- Total Current Liabilities 29,894,488 ----------- 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, 12,495,000,000 shares authorized, 3,808,301,476 shares issued and outstanding 3,808,301 Paid in capital 26,091,556 Accumulated (deficit) (58,668,740) ----------- (28,768,883) ----------- $ 1,125,605 =========== 4 See accompanying notes to the financial statements. Med Gen, Inc. Statements of Operations For the Three Months and Six Months Ended March 31, 2008 and 2007 (Unaudited)
Three Months Six Months ---------------------------- ---------------------------- 2008 2007 2008 2007 ------------- ------------- ------------- ------------- Revenue: Product $ 72,937 $ 20,976 $ 91,326 $ 77,729 Service 419,411 475,000 684,522 600,000 ------------- ------------- ------------- ------------- 492,348 495,976 775,848 677,729 Cost of revenue 175,940 80,791 324,329 165,202 ------------- ------------- ------------- ------------- Gross profit 316,408 415,185 451,519 512,527 ------------- ------------- ------------- ------------- Operating expenses: Selling, general and administrative expenses - Non cash stock compensation 59,024 685,300 59,024 998,800 Selling, general and administrative expenses - Other 699,111 510,074 1,341,869 1,017,327 ------------- ------------- ------------- ------------- 758,135 1,195,374 1,400,893 2,016,127 ------------- ------------- ------------- ------------- (Loss) from operations (441,727) (780,189) (949,374) (1,503,600) ------------- ------------- ------------- ------------- Other (income) expense: Interest expense 131,966 336,376 258,175 421,766 Interest income (4,671) (5,823) (9,952) (12,760) Derivative instrument (income) expense (11,527,015) 417,780 7,678,867 767,181 ------------- ------------- ------------- ------------- (11,399,720) 748,333 7,927,090 1,176,187 ------------- ------------- ------------- ------------- Income (loss) before income taxes 10,957,993 (1,528,522) (8,876,464) (2,679,787) Income taxes - - - - ------------- ------------- ------------- ------------- Net (loss) $ 10,957,993 $ (1,528,522) $ (8,876,464) $ (2,679,787) ============= ============= ============= ============= Per share information - basic and fully diluted: Weighted average shares outstanding 3,345,086,331 356,760,665 2,643,121,357 314,734,841 ============= ============= ============= ============= Net (loss) per share $ 0.00 $ (0.00) $ (0.00) $ (0.01) ============= ============= ============= =============
5 See accompanying notes to the financial statements. Med Gen, Inc. Statements of Cash Flows For the Six Months Ended March 31, 2008 and 2007 (Unaudited)
2008 2007 ----------- ----------- Cash flows from operating activities: Net cash (used in) operating activities $ (972,051) $ (964,490) ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (69,875) (15,600) ----------- ----------- Net cash (used in) investing activities (69,875) (15,600) ----------- ----------- Cash flows from financing activities: Proceeds from convertible debentures 510,000 700,000 ----------- ----------- Net cash provided by financing activities 510,000 700,000 ----------- ----------- Net (decrease) in cash (531,926) (280,090) Beginning - cash and cash equivalents 1,250,009 1,349,608 ----------- ----------- Ending - cash and cash equivalents $ 718,083 $ 1,069,518 =========== ===========
6 See accompanying notes to the financial statements. MED GEN, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2008 (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, 2007, and for the two years then ended, including notes thereto included in the Company's Form 10-KSB. (2) Earnings Per Share The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods when anti-dilutive commons stock equivalents are not considered in the computation. (3) Inventory Inventory is stated at the lower of cost, determined on a first in, first out basis, or market value. Inventory consists principally of finished goods and packaging materials. (4) Stockholders' (Deficit) Common Stock During December 2007 the Company increased the number of authorized shares to 12,500,000,000 consisting of 12,495,000,000 shares of common stock and 5,000,000 shares of preferred stock. During the period from October 2007 through December 2007 the Company issued an aggregate of 1,084,434,974 shares of common stock for the conversion $133,199 of the notes described on Note 6. During the period from January 2008 through March 2008 the Company issued an aggregate of 1,172,768,500 shares of common stock for the conversion $73,915 of the notes described on Note 6. During February and March 2008 the Company issued 250,000,000 shares of common stock and agreed to issue 200,000,000 shares of common stock for services with a fair value of $45,000 which was charged to operations during the period. During the period ended March 31, 2008, the Company repriced 100,000,000 options held by officers to $.0001 per share which resulted in a charge to operations of $14,024 during the period. 7 Stock Options A summary of stock option activity is as follows:
Weighted Weighted Number average average of exercise fair shares price value ------ ----- ----- Balance at September 30, 2007 and March 31, 2008 100,000,000 $0.0001 $0.0001
The following table summarizes information about fixed-price stock options at March 31, 2008:
Outstanding Exercisable ----------- ----------- Weighted Weighted Weighted- Average Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price ------ ----------- ---- ----- ----------- ----- $0.0001 100,000,000 4.2 years $0.0001 100,000,000 $0.0001
(5) Commitments, Concentrations and Contingencies During the period ended March 31, 2008, the Company performed consulting services pursuant to contracts with 90 day terms for 8 companies for fees aggregating $828,000 of which $144,278 is recorded as deferred revenue and included in accounts payable and accrued expenses, for services to be performed at future dates. Substantially all of the revenue related to these services was derived from clients of the Company's primary lender NIR Group (See Note 6). These clients were referred to the Company either directly by NIR Group or by a third party. Litigation During May 2003 Global Healthcare Laboratories, Inc. (Global) made a claim against the Company for breach of contract under a master license agreement. Management contended that Global committed fraud and multiple breaches of the master license agreement and that the claim was without merit. The matter was re- filed for the third time by the plaintiffs after two prior dismissals by the Federal courts for failure to state a cause of action. On August 31, 2004 a verdict was rendered in favor of the plaintiffs and they were awarded a judgment in the sum of $2,501,191. The Company initially intended to appeal the verdict, however on December 3, 2004, the Company and Global settled the matter as follows: The Company would make cash payments to Global aggregating $200,000 through March 1, 2005, and would issue to Global an aggregate of 400,000 shares of common stock. The shares to be issued were valued at their fair market value of $1,120,000. The Company has recorded an accrual of $200,000 for the cash payments due and a stock subscription of $1,120,000 for the common shares issuable at September 30, 2004, and charged $1,320,000 to operations for the settlement during the year ended September 30, 2004. The Company has agreed to file a registration statement covering an aggregate of 510,000 shares of common stock on or before January 15, 2005, and should it not due so an additional 25,000 shares of common stock would be due to Global. Global will be required to execute proxies giving the voting rights of the shares issuable to an officer of the Company. 8 A dispute between the parties arose and the settlement agreement was set aside by the Court and no new settlement agreement has yet been reached. Through September 30, 2005, the Company made payments to Global aggregating $75,000. At September 30, 2005, the Company recorded an accrual amounting $2,426,191 (the original judgment of $2,501,191 less the payments made of $75,000) plus post judgment interest at 7% of $169,800. During the year ended September 30, 2005, the Company charged $1,181,191 to operations for the difference between the settlement recorded during 2004 and the total judgment awarded. The Company is currently attempting to negotiate a new settlement agreement with Global. In addition, the Company issued 400,000 shares of its common stock which were held by the Company pending issuance to Global. These shares were cancelled when the settlement was set aside. During the year ended September 30, 2006, the Company recorded an additional $43,770 of post judgment interest. During April 2006 the Company settled the litigation by agreeing to the following: A cash payment of $300,000 29 monthly payments of $31,667 The issuance of 15,000,000 common shares subject to registration rights The holders of the shares shall have the right beginning on the effective date of the registration statement for a period of two years to require the Company at the Company's discretion to sell the shares back to the Company for $200,000 or require the Company to issue additional shares so that the value of the shares held by the holders is $200,000. As of June 30, 2007, the Company issued an aggregate of 48,293,269 (including the 15,000,000 shares described above) shares of common stock in full settlement of the $200,000 obligation. As a result of the settlement the Company's obligation related to the litigation was reduced by $782,848 which has been recorded as a gain on the settlement date. The balance due is $116,677 at March 31, 2008. During the periods covered by these financial statements the Company issued shares of common stock and subordinated debentures without registration under the Securities Act of 1933. Although the Company believes that the sales did not involve a public offering of its securities and that the Company did comply with the "safe harbor" exemptions from registration, if such exemptions were found not to apply, this could have a material impact on the Company's financial position and results of operations. In addition, the Company issued shares of common stock pursuant to Form S-8 registration statements and pursuant to Regulation S. The Company believes that it complied with the requirements of Form S-8 and Regulation S in regard to these issuances, however if it were determined that the Company did not comply with these provisions this could have a material impact on the Company's financial position and results of operations. (6) CALLABLE SECURED CONVERTIBLE NOTES AND DERIVATIVE INSTRUMENT LIABILITIES Between March 30, 2005 and March 31, 2008, the Company entered into a series of fourteen Securities Purchase Agreements with four accredited investors ("Note Holders") for the sale of an aggregate of $8,111,263 of Callable Secured Convertible Notes (the "Convertible Notes") and warrants to purchase up to 83,240,000 shares of its common stock (the "Warrants"). The first eight tranches of the Convertible Notes and tranche 13 bear interest at 8%, tranches nine through twelve bear interest at 6% and tranche 14 bears interest at 2%. Tranche 14 was issued on January 31, 2008, to settle all accrued interest as of September 30, 2007. All notes mature three years from the date of issuance. The Company is not required to make any principal payments during the term of the Convertible Notes. 9 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) 45% of the average of the three lowest intra-day trading prices for the common stock as quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion date. In connection with the issuance of tranche 13 and the waiver of registration penalties owing by the Company (see below) on January 28,2008, the Company agreed to reduce the conversion price from 50% to 45% (for tranches four through eight) and from 60% to 45% (for tranches nine through twelve) of the average market price (computed as described above). At March 31, 2008, tranches one, two and three have been fully converted by the Note Holders and tranche four has been partially converted. As of March 31, 2008, 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 preceding trading days was $0.0001, resulting in an effective conversion price as of March 31, 2008 of $0.000045 per share. The full principal amount of the Convertible Notes is due upon the occurrence of an event of default, which include non-payment of principal and interest when due and failure to effect registration of the common shares underlying conversion of the Convertible Notes and exercise of the Warrants. The Company previously obtained a waiver as of January 28, 2008 related to registration penalties incurred through that date and events of default as of that date. At March 31, 2008, the Convertible Notes, which are carried at their face amount, are in default. No demand for payment has been received, or is currently expected to be received, from the Note Holders. The default premium that the Note Holders may demand, which in part is dependent on the Company's common stock price, is recorded as a derivative instrument liability. If the Convertible Notes are not in default, the Company has the right to prepay the Convertible Notes under certain circumstances at a premium ranging from 25% to 50% of the principal amount, depending on the timing of such prepayment. The Company has granted the Note Holders a security interest in substantially all of the Company's assets. The 83,240,000 warrants issued are exercisable for a period of five or seven years from the date of issuance and have exercise prices that range from $0.0001 per share to $0.10 per share. The conversion price of the Convertible Notes and the exercise price of the warrants will be adjusted in the event that the Company issues common stock at a price below the initial fixed conversion or exercise price, with the exception of any shares of common stock issued in connection with the Convertible Notes. The conversion price of the Convertible Notes and the exercise price of the warrants may also be adjusted in certain circumstances such as if the Company pays a stock dividend, subdivides or combines outstanding shares of common stock into a greater or lesser number of shares, or takes such other actions as would otherwise result in dilution of the Note Holders' position. Pursuant to Registration Rights Agreements entered into with the Note Holders, the Company is obligated to register for resale, within defined time periods, the shares underlying the Warrants and the shares issuable on conversion of the Convertible Notes. The terms of the Registration Rights Agreements provide that, in the event that the required registration statements are not filed or do not become effective within the required time periods, the Company is required to pay to the Note Holders as liquidated damages, an amount equal to 2% per month of the principal amount of the Convertible Notes. This amount may be paid in cash or, at the Holder's option, in shares of common stock priced at the conversion price then in effect on the date of the payment. The Company accrues any penalties incurred to date, together with an estimate of the 10 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. As of December 31, 2007, the Company had accrued $1,838,293 in respect of such penalties. As discussed above, on January 28, 2008, the Note Holders agreed to waive all penalties incurred through that date in exchange for the Company agreeing to reduce the floating conversion price on tranches four through twelve of the Convertible Notes to 45% of the average trading price. Also, effective February 15, 2008, the holding periods required under Rule 144 before securities may be freely sold without registration and without volume limitations were reduced. As a result of the waiver and the amendments to the required holding periods under Rule 144, at March 31, 2008, the Company had accrued $99,456 in respect of estimated registration penalties. Because the number of shares that may be required to be issued on conversion of the Convertible Notes is dependent on the price of the Company's common stock and is therefore indeterminate, the embedded conversion option of the Convertible Notes and the Warrants are accounted for as derivative instrument liabilities (see below) in accordance with EITF Issue 00-19, "Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company's Own Common Stock" (EITF 00-19). Accordingly, the initial fair values of the embedded conversion options and the Warrants were recorded as derivative instrument liabilities. 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 Company is required to re-measure the fair value of these derivative instrument liabilities at each reporting period. At March 31, 2008, the Convertible Notes are in default and the derivative instrument liability reflects the default premium payable if the Note Holders were to demand payment at that date. A summary of the Callable Secured Convertible Notes at March 31, 2008, is as follows:
Issue Date Due Date Face Amount Principal Outstanding - ------------------------------------------------------------ 03-30-2005 03-30-2008 $ 740,000 $ 0 05-25-2005 05-25-2008 700,000 0 08-23-2005 08-23-2008 100,000 0 08-26-2005 08-26-2008 500,000 319,743 10-31-2005 10-31-2008 600,000 600,000 02-23-2006 02-23-2009 600,000 600,000 04-21-2006 04-21-2009 750,000 750,000 08-10-2006 08-10-2009 1,500,000 1,500,000 01-30-2007 01-30-2010 350,000 350,000 02-09-2007 02-09-2010 350,000 350,000 06-21-2007 06-21-2010 650,000 650,000 09-30-2007 09-30-2010 350,000 350,000 01-28-2008 01-31-2011 525,000 525,000 01-31-2008 01-31-2011 396,263 396,263 ---------- ---------- $7,190,000 $6,391,006 ---------- ----------
11 At March 31, 2008, the following derivative liabilities related to common stock Warrants and embedded derivative instruments were outstanding:
Exercise Value Number of Price March 31, Issue Date Expiry Date Warrants Per Share 2008 - -------------------------------------------------------------- 03-30-2005 03-30-2010 740,000 $0.085 $ - 05-25-2005 05-25-2010 700,000 0.085 - 08-23-2005 08-23-2010 100,000 0.085 - 08-26-2005 08-26-2010 500,000 0.090 - 10-31-2005 10-31-2010 600,000 0.100 - 02-23-2006 02-23-2011 600,000 0.050 - 04-21-2006 04-21-2011 30,000,000 0.050 - 08-10-2006 08-10-2013 15,000,000 0.050 - 01-30-2007 01-30-2014 5,000,000 0.010 2 02-09-2007 02-09-2014 5,000,000 0.010 2 06-21-2007 06-21-2014 10,000,000 0.009 6 09-30-2007 09-30-2014 5,000,000 0.009 4 01-28-2008 01-28-2015 10,000,000 0.0001 1,397 -------- Fair value of freestanding derivative instrument liabilities for warrants $1,411 --------
12
Principal Default Outstanding - Premium - Convertible March 31, Issue Date Expiry Date Notes 2008 - --------------------------------------------------- 08-26-2005 08-26-2008 319,743 1,157,886 10-31-2005 10-31-2008 600,000 2,149,560 02-23-2006 02-23-2009 600,000 2,149,560 04-21-2006 04-21-2009 750,000 2,686,950 08-10-2006 08-10-2009 1,500,000 5,373,900 01-30-2007 01-30-2010 350,000 1,241,821 02-09-2007 02-09-2010 350,000 1,241,821 06-21-2007 06-21-2010 650,000 2,306,240 09-30-2007 09-30-2010 350,000 1,292,455 01-28-2008 01-28-2011 525,000 1,813,400 01-31-2008 01-31-2011 396,263 1,383,117 ----------- Fair value of bifurcated embedded derivative instrument liabilities associated with the convertible notes $22,796,710 ----------- Total derivative financial instruments $22,798,121 ===========
(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 March 31, 2008, the Company incurred a net loss of $8,876,464 and has a working capital deficit, an accumulated deficit and a stockholders' deficit of $28,981,128, $58,668,740 and $28,768,883 at March 31, 2008. The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing, increase ownership equity and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which the Company operates. The Company is pursuing financing for its operations and seeking additional investments. In addition, the Company is seeking to expand its revenue base by adding new customers and increasing its advertising. Failure to secure such financing or to raise additional equity capital and to expand its revenue base may result in the Company depleting its available funds and not being able pay its obligations. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. (8) Subsequent Events Through April 2008, the Company issued 811,505,300 shares of common stock for note conversions aggregating approximately $62,556 and 200,000 shares of preferred A shares to officers and directors convertible into 200,000,000 common shares. The Company has applied to the Nasdaq Corporate Action Department for permission to effectuate a reverse split of its common shares as follows: 200 :1 reverse split effective June 2, 2008 for all shareholders of record as of the close of business on May 19, 2008. All fractional shares will be eliminated. The Company will file a Form 8-K if and when approval is granted. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended March 31, 2008 Compared with Three months ended March 31, 2007 and Six Months ended March 31, 2008 Compared with Six months ended March 31, 2007 GENERAL - ------- The Company is now headquartered at 7280 W. Palmetto Park Rd., Suite 306, Boca Raton, Florida 33433 since January 1,2007 .It does not foresee any need to further expand its 3300 sq. ft. corporate facility. The Company has elected to outsource the manufacturing of all its products at this time. Results of Operations - --------------------- For the second fiscal quarter ended March 31, 2008 compared to 2007, revenue decreased from $492,348 to $495,976.Product sales increased from $20,976 to $72,937 in this quarter while consulting services decreased from $475,000 to $419,411 for the comparable quarters. During the periods ended March 31, 2008 and 2007, the Company performed consulting services pursuant to various contracts. Substantially all of the revenue related to these services was derived from clients of the Company's primary lender NIR Group. These clients were referred to the Company either directly by NIR Group or by a third party. For the six months ended March 31, 2008 compared to 2007, revenue increased from $677,729 to $775,848.Product sales increased from $77,729 to $91,326 in this period while consulting services increased from $600,000 to $684,522 for the comparable periods. During the periods ended March 31, 2008 and 2007, the Company performed consulting services pursuant to various contracts. Substantially all of the revenue related to these services was derived from clients of the Company's primary lender NIR Group. These clients were referred to the Company either directly by NIR Group or by a third party. Gross profit for the second quarter was $316,408 versus $415,185 for the year ago quarter, an decrease of 23.80%. For the six months ended March 31, 2008 Gross profit was $451,519 versus $512,527 for the six months ending March 31, 2007, a decrease of 11.91%. The decreases resulted from the costs related to consulting services. Operating expenses (selling, general and administrative expenses) increased to $699,111from $510,074, an increase of 27.04%. The increase is due to increased advertising costs incurred in the quarter and the addition of another internet employee and attenuate health coverage costs. Operating expenses for the six months increased to $1,341,869 from $1,017,327 an increase of 24.19%. 14 Operating loss was $441,727 as opposed to a loss of $780,189 in the prior year's quarter. The loss was lower because of decreased non- cash compensation in this quarter as compared to a year ago. The Company has adopted a policy of conserving as much cash as possible for advertising in all media and has paid numerous consultants in stock as a way of conserving cash. The Company will continue this policy until sales reach at least approximately 5 million dollars on an annualized basis which cannot be assured. Operating loss for the Six months was $949,374 and $1,503,600. The loss was higher because of increased non-cash compensation in this quarter as compared to a year ago. The Company has adopted a policy of conserving as much cash as possible for advertising in all media and has paid numerous consultants in stock. The Company will continue this policy until sales reach at approximately $5 million annually, which cannot be assured. Interest expense decreased from $336,376 in the year ago quarter to $131,966 for this quarter. The Company does not have to pay the interest due this quarter and the decrease also relates to factors in derivative accounting more fully explained in the "notes to financials". Interest expense decreased for the six-month period from $421,766 to $258,175. The Company does not have to pay the interest due this quarter and the increase also relates to factors in derivative accounting more fully explained in the "notes to financials". Derivative income (expense) was $(417,780) for the quarter ended March 31, 2007 as compared to $11,527,015 in 2008, and $(767,181) for the six months ended March 31, 2007 as compared to $(7,678,867) in 2008. For the second fiscal quarter the company reported net income of $0.00 per share versus a loss of $0.00 per share in the year ago quarter. For the six month period comparison the Company lost $0.00 during 2008 as compared to a loss of $0.01 during 2007. Liquidity and Capital Resources - ------------------------------- Cash on hand at March 31, 2008, was $718,083 and the Company had a working capital deficit of $28,981,128. Net cash used in operating activities was $972,051 during the six months ended March 31, 2008. Net cash used in investing activities was $69,875 during the six months ended March 31, 2008 which consisted principally of the acquisition of equipment. 15 Net cash provided by financing activities was $510,000 during the Six months ended March 31, 2008, which consisted of net draw downs on the credit facility. The Company has affected a 10% price increase for all of its products. The Company believes it has sufficient cash resources, and cash flow to provide for all general corporate operations for the balance of the fiscal year ended September 30, 2008, but there can be no assurance of this. The Company intends to drawdown an additional $500,000 in the third and fourth quarters of fiscal 2008 from the lenders. The Company intends to launch several infomercials in the second half of the fiscal year including "Snorenz" and "Painenz" and its newest product "Fabulust." 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, 2008, the Company incurred a net loss of $8,876,464 and has an accumulated deficit of $58,668,740 at March 31, 2008. 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 16 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, 2007, 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, 2007 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. 17 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. 18 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 in the Company's filings 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 The Company did not require a proxy vote for this years' annual shareholder meeting. Item 5. OTHER INFORMATION The Company has applied to the Nasdaq Corporate Action Department for permission to effectuate a reverse split of its common shares as follows: 200 :1 reverse split effective June 2nd, 2008 for all shareholders of record as of the close of business on May19th, 2008. All fractional shares will be eliminated. The Company will file a Form 8-K when approval is granted and furnish its new cusip number and new symbol. Item 6. EXHIBITS AND REPORTS ON FORM 8-K The Company has filed Form 8-K on 1-8-2008 and 2-04-2008 Exhibits: 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 19 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: May 7, 2008 By:/s/Paul B. Kravitz ------------------- Paul B. Kravitz Chief Executive Officer 20 EX-31.1 2 mar08q-ex311.txt [EXHIBIT 31.1] CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Paul Kravitz, certify that: 1. I have reviewed this annual report on Form 10-QSB of Med Gen, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have: a. designed such disclosure controls and procedures 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 quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 7th, 2008 By: /s/Paul Kravitz ------------------- Paul Kravitz Chief Executive Officer EX-31.2 3 mar08q-ex312.txt [EXHIBIT 31.2] CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Jack Chien, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Med Gen, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have: a. designed such disclosure controls and procedures 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 quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 7th, 2008 By:/s/Jack Chien ------------------ Jack Chien Chief Financial Officer and Principal Accounting Officer EX-32.1 4 mar08q-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 for the period ended March 31st 2008, 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. May 7th, 2008 /s/ Paul B. Kravitz --------------------------- Paul B. Kravitz Chief Executive Officer EX-32.2 5 mar08q-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 for the period ended March 31st, 2008, 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. May 7th, 2008 /s/ Jack Chien ----------------------- Jack Chien Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----