Mail Stop 0309
February 16, 2005
Mr. Paul Mitchell, President
Med Gen, Inc.
7284 W. Palmetto Park Road - Suite 207
Boca Raton, Florida 33433
Re: Med Gen, Inc.
Form SB-2 Registration Statement
File No. 333-122093
Form 10-KSB for the fiscal year ended September 30, 2004
Form 10-QSB for the period ended December 31, 2004
File No. 0-29171
Dear Mr. Mitchell:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Comments applicable to the entire filing
1. Throughout the document you have improperly capitalized many
words
and terms that you are using for their common meanings. They
include
the following: "Company," "Prospectus," "Investors," "Offering,"
"Common Stock," "Pink Sheets," and "Annual Report." Please revise
your document to limit use of capitalization to proper names and
the
first letters of sentences.
2. Throughout your document, you have made excessive use of the
phrase "our Company," a term that is too vague and generic to be
meaningful. Instead, please replace this term with words such as
Med
Gen, we, our, us or similar language that is more precise and
descriptive.
Prospectus Cover Page
3. Information presented on the cover page should be limited to
the
information specified in Item 501(a) of Regulation S-B.
Accordingly,
please delete all but the portion of the first sentence of the
first
paragraph up to the comma, the second paragraph, all but the first
sentence of the third paragraph and the fourth paragraph. You
should
also expand the disclosure regarding your stock price to include
the
asked price and to indicate that the prices may not reflect any
actual transactions.
4. Please revise the cross reference to the risk factor section so
that it is in bold face type.
Prospectus Summary
5. Please delete the last sentence of the introductory paragraph.
This information is clear, or should be clear from the context.
6. Although you refer to this section as a "summary" of
information
contained elsewhere in the document, as currently written, it does
not summarize any information at all. Instead, it simply repeats
information you already provided on the cover page. If you choose
to
include a summary in your filing, the information in it should
include a brief overview of your business and the offering.
Please
revise it accordingly.
Risk Factors - page 2
7. In this section and elsewhere in the registration statement you
state that you "cannot assure you that," "there can be no
assurance
that," "there is no assurance that," and "cannot predict whether"
various things will or will not happen. Statements such as these
are
legalistic and redundant. Please delete them. Instead, please be
certain that you have adequately explained why you cannot make the
assurance or prediction.
8. Additionally, describe the consequences if the event(s) that
you
cannot assure or predict will occur do not occur. For example:
* On page 2, you state that you cannot assure investors that any
institution will be acting as a market maker for your stock at any
time. Please revise to discuss the consequences if there are not
market makers.
* On page 4, you state that you can`t assure investors that they
will
ever receive any cash, stock or other dividends on their shares.
Please revise to discuss the consequences.
9. Many of your risk factor subheadings are simple statements of
fact
that do not identify a specific risk and its potential adverse
consequences to an investor or the company. You will need to
revise
them so that they do. In addition, the subheading should
accurately
summarize the content of the body of the risk factor. The
subheading
should not be repeated in the body of the risk factor. Here are
some
examples of subheadings that need to be revised:
* "Our Company does not plan to issue dividends to its
stockholders
for the foreseeable future." - page 4
* "Our Company faces competition, and many of its competitors are
larger and have more resources than our Company." - page 4
* "Our Company`s success is dependent upon its ability to manage
anticipated growth." - page 5
* "Our Company depends on the performance of a network of
distributors and brokers." - page 6
There is a limited trading market for our Company`s stock, which
may
cause our Company`s reported stock prices to be volatile and limit
your ability to sell your shares. - page 2
10. It appears that you have combined two separate risks in this
risk
factor. One relates to your trading on the OTC Bulletin Board and
the other relates to the market for stocks of OTC "wellness"
companies. Please separate the risks so that each one is
presented
under an appropriate subheading.
11. Please delete the first sentence of the risk factor as it
simply
repeats information you already provided on the cover page. The
second sentence is a mitigating statement that is inappropriate in
a
risk factor, and should also be deleted.
In the event that the price of our Company`s stock is less than
$5.00
per share, as it currently is, our stock will be subject to the
requirements for penny stocks, which could adversely affect your
ability to sell and the market price of your shares. - page 3
12. As there is no indication that your stock price has ever been
over $5.00, nor any indication that it is likely to be so in the
foreseeable future, we think this subheading is inappropriately
mitigating as it is currently written. We think it would be more
appropriate to state that the stock is a "penny stock" under the
federal securities laws, and as such, is subject to special
trading
rules that are likely to make it difficult to sell your shares at
a
price higher than an investor paid for them.
13. In the last sentence of the risk factor you refer to
restrictions
on the resale of the shares being registered. We do not
understand
what you are trying to say. Registered shares are supposed to be
freely tradeable. Are you saying that the shares are subject to
some
additional restrictions? If so, you will need to disclose them.
In the future, our revenues and quarterly operating results may
fluctuate, which may adversely affect the market price of our
Company`s stock and could lead to our Company becoming the target
of
costly securities class action litigation. - page 3
14. Please delete the phrase "in the future" from the subheading.
It
suggests that you have not had such fluctuations in the past.
15. In the body of the risk factor you refer to the "expectations
of
market analysts." Are your shares currently being followed by
market
analysts? If so, please provide us with copies of these current
analyses. If not, please delete the references to analysts.
16. As currently written, this risk factor could be discussing any
company in your industry. Please revise it to more specifically
describe your own situation. For example, we note the large drop
in
your revenue during the past year. How did this drop impact your
stock price? Did you add any new products to your line? If so,
how
did that affect your stock price. The disclosure should also be
quantified to the extent practicable.
You may suffer dilution of your investment if our Company issues
additional securities; our Company has in the past and may in the
future issue securities to its executive officers and directors. -
page 4
17. Currently, both the subheading and the body of the risk factor
are statements of fact that do not identify a specific risk and
its
potential adverse consequences. Please revise the risk factor
accordingly. Also, you need to include a factual context for
analyzing the risk. How many securities have you issued in each
of
the last two years and interim period? Who did you issue them to?
What percentage of your outstanding shares do these issuances
represent? How did these issuances affect the market for your
shares?
Our Company does not plan to issue dividends to its stockholders
for
the foreseeable future. - page 4
18. The subheading and the body of this risk factor are also
statements of fact that do not describe a specific risk and its
likely adverse consequences. Please revise it accordingly. In
light
of your going concern opinion, we are not sure why a person making
an
investment in your company at the present time would consider the
non-issuance of dividends to be a significant risk. Please
explain
in your revised disclosure.
Our company`s articles of incorporation and bylaws contain
provisions
that could delay or prevent a change in control. These provisions
could limit the price that investors might be willing to pay in
the
future for shares of the Company`s common stock. - page 4
19. Please revise and expand the risk factor to be more specific.
For example, is it an article of incorporation, a bylaw or a
statute
that permits you to issue preferred stock as stated in the first
bullet. What is the supermajority voting requirement? What is
the
percentage of stock controlled by management? Does the
supermajority
requirement enable management to veto transactions that may be
desired by other non-affiliated shareholders?
20. It appears that these provisions also serve to entrench
current
management of the company. Please include appropriate risk factor
disclosure regarding this.
Through this Offering, our Company is registering a significant
number of shares of common stock so that they are freely tradable,
which may have a depressing effect on the market price of the
common
stock of our Company. - page 4
21. Currently, this risk factor makes a statement, but does not
describe a specific risk and its potential adverse consequence for
a
person investing in this offering. Moreover, the body of the risk
factor simply repeats the statement in the subheading. Please
revise
the risk factor and its subheading to describe a specific risk and
its potential adverse consequences. Also, provide an adequate
factual context, quantified to the extent practicable, for
analyzing
the risk.
Our Company faces competition, and many of its competitors are
larger
and have more resources than our Company. - page 4
22. Please revise the risk factor and its subheading to describe a
specific risk and its potential adverse consequences for an
investor
in this offering. Include an adequate factual context as well.
For
example, who are your primary competitors? How does your market
share compare to theirs? On what basis do you compete with them?
How has your lack of financial resources affected your ability to
compete? Has your consent decree with the FTC affected how you
compete? How much do you anticipate it will cost you to
effectively
compete?
23. In the risk factor you state that you have "entered the magnet
therapy market." We are unable to locate a discussion of this in
the
business section or MD&A. Please provide the appropriate
disclosures
regarding this activity, including an explanation of what it is,
how
much funding you will need to do this, and how you propose to
obtain
the funding.
Our Company`s success is dependent upon its ability to manage
anticipated growth. - page 5
24. You state in the risk factor that your company intends to
pursue
"rapid growth." Please explain, in light of your current
financial
condition, how you propose to do this. Quantify the disclosure to
the extent practicable. Your revised disclosure should also be
specific about what the term "rapid growth" means for your
business.
25. As currently written, the risk factor is so vague and abstract
that it could apply to any company. Please revise it to be
specific
to your own situation.
In fiscal year 2004, our Company`s three largest customers were
Wal-
Mart, Walgreens and Eckerd which represented 66% of our Company`s
annual sales that year... - page 5
26. Please revise the subheading and body to describe a specific
risk
and its potential adverse consequence. Also, delete the first
sentence of the body of the risk factor since it simply repeats
the
subheading.
27. Disclose when you introduced the new brand and the percentage
of
revenue attributable to it.
28. Explain what you mean when you refer to "the issue of
dominance"
and how introducing a new product addresses it.
29. Do you have any reason to believe that you will lose any of
your
material customers? If so, you need to discuss the situation.
30. You say that selling your products to new accounts is a major
management goal. Please describe your efforts in this regard and
discuss how successful they have been to date. The discussion
should
be quantified to the extent practicable.
Our 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... - page 5
31. Please quantify the information in this risk factor. For
example, disclose the amount of your accumulated deficits and the
amount of the settlement.
32. You state that your 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 our Company operates." This statement is too
vague and abstract to be meaningful to an investor. Please revise
the discussion to explain, in reasonable detail, what these
problems,
expenses and complications are, and how you have been adversely
affected in the past.
If our Company loses key management personnel, it may not be able
to
successfully operate its business. - page 5
33. Please discuss whether you have employment agreements with the
named individuals, and indicate whether you have any reason to
believe that you might lose their services.
34. You say that the loss of "certain" of your key employees could
adversely affect your operating results or financial condition.
Please revise the disclosure to identify the "certain" employees
and
describe how your operating results or financial condition would
be
adversely affected.
There are a limited amount of clinical studies and scientific
review
of our Company`s key products, and our Company`s business could
suffer from adverse publicity concerning our Company`s products or
similar products. - page 6
35. Please expand the risk factor to indicate whether your
products
have, to date, been asserted to have caused, or proven to cause
harm
to consumers. Also disclose whether your products, or similar
products, have received adverse publicity to date. If so, please
describe the specific adverse consequences that resulted.
Our Company depends on the performance of a network of
distributors
and brokers. - page 6
36. Please revise the risk factor to provide an adequate factual
context for evaluating the risk. For example, how many
distributors/brokers do you have? Do any of them account for more
than 10% of your revenue? If so, identify them. Have you lost
any
of them during the past two years? Have you added additional ones
during the same period? Do you have any reason to believe that
you
will lose any of them in the foreseeable future?
Our Company may face product liability claims from users of its
products. - page 6
37. Disclose the amount of liability insurance you carry. Also
disclose whether you have been subject to liability claims in the
past, and if so, whether you experienced adverse consequences.
In 2002, our Company signed a consent decree settling an FTC
investigation of claims made by our Company on its packaging and
labels. - page 7
38. Please provide us with a copy of the consent decree. We may
have
additional comments after we review it.
Market Price of Common Stock and Other Shareholder Matters - page
7
39. Please revise the historical price data so that the stock
dividend and splits are reflected over the entire time period
presented.
Management`s Discussion and Analysis of Financial Condition and
Result of Operations - page 8
40. We feel that the overall presentation and focus of discussions
in
Management`s Discussion and Analysis (MD&A) can be more robust
with
guidance provided by the Financial Reporting Release 72
"Commission
Guidance Regarding Management`s Discussion and Analysis of
Financial
Condition and Results of Operations". Consider the following when
compiling your MD&A in all future filings:
* Overall presentation of MD&A;
* Focus and content of MD&A (including materiality, analysis, key
performance measures and know material trends and uncertainties);
* Disclosures regarding liquidity and capital resources; and
* Disclosures regarding critical accounting estimates
You can find the guidance at
http://www.sec.gov/rules/interp/33-8350.htm.
Business of Our Company - page 11
41. Throughout this section you make a number of statements
regarding
the size of the market for your products and other statistical
information. For example, you state, on page 11 that:
* "Industry observers estimate this market`s size at $27 billion a
year..."
* "Snorenz is currently sold through a number of Fortune 100
retailers representing a marketing network in excess of 30,000
stores
nationwide."
For each such claim in the prospectus, please provide us
supplementally with the documents containing the information you
are
relying on in making these claims. Please mark the documents to
show
the location of the information supporting each specific claim.
We
may have additional comments after reviewing your supporting data.
42. Please expand the disclosure to include a table setting forth
each of your products and the amount of revenue attributable to
each
of them in each of the last two fiscal years and interim period.
43. Please include a second table that identifies each of the
retailers that have accounted for 10% or more of your revenues
during
the last two years and interim period, and the amount attributable
to
each.
44. On page 12 you include a number of technical terms that are
not
likely to be familiar to readers of this prospectus. Please
explain,
in plain English, what each of the terms means at the first place
the
term appears. The include, but are not limited to the following
terms:
* Lipophilic and hydrophilic ingredients
* Encapsulation rate
* Transmucosally
* Multiphasic system
45. Please tell us why you have not filed your manufacturing and
distribution agreements as exhibits to this registration
statement.
See Item 601 of Regulation S-B.
46. Please clarify, on page 12 under "Internet Sales" which years
you
are referring to. Also, expand the disclosure to disclose, for
each
of the last two years and interim period, the amount of your sales
attributable to the internet. Also compare the amounts of these
sales to your retail sales.
Legal Proceedings - page 15
47. Please expand the discussion to describe the factual basis,
specific allegations and findings involved in the lawsuit.
Management and Executive Compensation - page 16
48. Please expand the discussion to briefly describe the specific
business experience for the past five years of each of your
executive
officers.
Stock Option Plan - page 16
49. We note the reference to options that were exercised and not
paid
for. Please expand the discussion to indicate whether the shares
received from the exercised options have been sold. If the shares
have been sold, please explain why the related indebtedness to the
company has not been paid. In addition, please tell us the
circumstances, i.e. how, when, to whom, etc., underlying the sale
of
shares from the option exercises. We may have additional
comments.
Certain Relationships and Related Transactions
50. Please relocate this section so that it appears immediately
following the "Management" section.
51. Your revised registration statement should include all of the
information specified in Item 404 of Regulation S-B regarding
transactions with management. This would include interest rates
and
the business purposes for the loans. We may have additional
comments
after we review this information.
52. In the MD&A section you indicate that you paid approximately
$450,000 to an affiliated entity in 2004. Please identify the
affiliate and its relationship to you, as well as the services
provided. We may have further comment.
53. You state, on page 21, that if the registration statement was
not
filed by January 15, 2005 you were obligated to issue an
additional
500,000 shares to the plaintiffs. Since the registration
statement
was filed after that date, please revise your disclosures
accordingly.
Financial Statements
Independent Auditor
54. We note that your auditors for the year ended September 30,
2004,
Stark Winter Schenkein & Co., are registered with the PCAOB and
issued their report in Colorado. If the audit firm is not
licensed
in Florida, where the company is headquartered, please tell us the
ramifications of not being licensed with the state of Florida in
performing their audit.
Age of Financial Statements
55. Please update the financial statements to comply with Rule 3-
10(g) in Regulation S-B.
Statement of Operations
56. As the litigation settlement is individually material and of a
different nature than stock compensation, you should present the
settlement amount separately on the face of the statement of
operations.
Notes to Financial Statements
Summary of Significant Accounting Policies - Advertising Cost
57. You state that advertising costs include agreed upon amounts
withheld from payments on accounts receivable by certain customers
for advertising done by the specific customer. Please tell us
more
information about this arrangement and its impact on operating
results. Explain how you ensure that the expense is recognized in
the
appropriate period and not late.
Exhibits
58. The consent of the independent certified public accountants
refers to their report dated November 25, 2003 on the financial
statements for the year ended September 30, 2004. The report date
needs to be corrected.
Signatures
59. Please identify your controller or chief accounting officer
and
provide his or her signature.
Form 10-QSB for Period Ending December 31, 2004
Notes to Financial Statements
60. Revise the disclosure in Form SB-2 and Form 10-Q to explain
why
accounts receivable increased by 90% from September 30, 3004 to
December 31, 2004 when sales in the quarter ended December 31,
2004
increased by only 5% from the comparable period in the prior year.
Disclose your standard credit terms and explain why days` sales in
accounts receivable exceeds the terms, if true. Also explain to
us
why the allowance for doubtful accounts remained unchanged.
61. You state in Note 9 that you agreed to issue two million
shares
of common stock for a line of credit and you will recognize the
value
of these shares as additional interest expense. We believe the
value
of the shares should be recognized over the term of the line of
credit as the cost appears to be for making the line of credit
available rather than a direct cost of lending.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
62. Please explain to us what you mean by the statement "The
Company
has also eliminated one-time burdens of legal, computer and other
non-recurring expenses." on page 13. Expand the disclosure to
more
fully discuss and quantify these costs. Quantify each element of
the
decrease in operating expenses and fully explain why the expense
decreased.
63. The above comments apply to Form SB-2, Form 10-KSB and Form
10-
QSB. Please revise all of them as appropriate.
* * * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* Should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* The action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* The company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
As appropriate, please amend your registration statement and
1934 Act reports in response to these comments. You may wish to
provide us with marked copies of the amendment to expedite our
review. Please furnish a cover letter with your amendment that
keys
your responses to our comments and provides any requested
supplemental information. Detailed cover letters greatly
facilitate
our review. Please file your cover letter on EDGAR under the form
type label CORRESP. Please understand that we may have additional
comments after reviewing your amendment and responses to our
comments.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
For questions regarding the financial statements, please
contact Christine Allen at (202) 824-5533 or Lisa Vanjoske at
(202)
942-1972. Please contact Mary Fraser at (202) 942-1864, John Krug
at
(202) 942-2979 or me at (202) 942-1840 with any other questions.
Sincerely,
Jeffrey P. Riedler
Assistant Director
Cc: Stewart A. Merkin, Esq.
Law Office of Stewart A. Merkin, P.A.
444 Brickell Avenue - Suite 300
Miami, Florida 33131
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Mr. Paul Mitchell
Med Gen, Inc.
February 16, 2005
Page 14