Mangoceuticals(MGRX) - 2023 Q1 - Quarterly Report

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This report contains forward-looking statements, subject to risks and uncertainties that may cause actual results to differ materially - This report contains forward-looking statements that are not guarantees of future performance, involving known and unknown risks and uncertainties[9] - Key factors that could cause actual results to differ materially include: - Ability to obtain additional funding and manage COVID-19 effects[10] - Capacity to build brand, expand operations, and increase sales[10] - Compliance with regulations affecting operations, manufacturing, and labeling[10] - Competition from existing and new products[10] - Dependency on third parties for prescribing and compounding its erectile dysfunction (ED) product[10] - Potential safety risks associated with its Mango ED product[10] - Macroeconomic factors like high inflation, interest rates, and economic downturns[10] - Ability to protect intellectual property and retain key personnel[10] PART I – FINANCIAL INFORMATION Financial Statements This section presents the company's unaudited Q1 2023 financial statements, reflecting initial revenue, increased losses, and a strengthened balance sheet post-IPO Balance Sheets Total assets increased to $4.1 million from $1.0 million due to IPO cash, with liabilities decreasing and equity growing to $3.8 million Balance Sheet Summary (Unaudited) | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :--- | :--- | :--- | | Assets | | | | Cash equivalents | $3,791,216 | $682,860 | | Total Current Assets | $3,822,491 | $694,605 | | Total Assets | $4,115,285 | $1,003,287 | | Liabilities & Equity | | | | Total Current Liabilities | $182,842 | $260,577 | | Total Liabilities | $296,109 | $389,257 | | Total Stockholders' Equity | $3,819,176 | $614,030 | Statements of Operations Q1 2023 generated first revenues of $100,722 and gross profit of $57,199, but surging expenses resulted in a $2.56 million net loss Statement of Operations Summary (Unaudited) | Metric | Three Months Ended Mar 31, 2023 ($) | Three Months Ended Mar 31, 2022 ($) | | :--- | :--- | :--- | | Revenues | $100,722 | $0 | | Gross Profit | $57,199 | $0 | | General and administrative expenses | $2,616,324 | $18,710 | | Net Loss | $(2,560,885) | $(19,599) | | Basic and Diluted Loss Per Share | $(0.23) | $(0.00) | Statements of Changes in Stockholders' Equity (Deficit) Stockholders' equity grew to $3.8 million by Q1 2023, primarily from $5 million IPO proceeds and $700,000 for services, offset by a $2.56 million net loss Changes in Stockholders' Equity (Q1 2023) | Description | Amount ($) | | :--- | :--- | | Balance, December 31, 2022 | $614,030 | | Issuance of common stock for cash | $5,000,000 | | Issuance of common stock for services | $700,000 | | Net loss | $(2,560,885) | | Other adjustments | $66,031 | | Balance, March 31, 2023 | $3,819,176 | Statements of Cash Flows Q1 2023 net cash used in operations was $1.8 million, offset by $4.9 million from financing, leading to a $3.1 million net increase and $3.79 million cash balance Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2023 ($) | Three Months Ended Mar 31, 2022 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(1,809,865) | $(18,710) | | Net Cash Used in Investing Activities | $(3,519) | $0 | | Net Cash Provided by Financing Activities | $4,921,740 | $50,000 | | Net Increase in Cash | $3,108,356 | $31,290 | | Cash at End of Period | $3,791,216 | $53,840 | Notes to Financial Statements Notes detail business, accounting policies, and financial components, covering the $5 million IPO, related-party transactions, and subsequent warrant exercises - The company focuses on developing and selling men's wellness products, primarily its 'Mango' brand erectile dysfunction (ED) product, through a telemedicine platform[24] - In March 2023, the company completed an IPO, issuing 1,250,000 shares of common stock at $4.00 per share, raising net proceeds of $4.35 million after costs[26] - The company has a Master Services Agreement with Epiq Scripts, LLC, a related party controlled by the company's CEO, to provide pharmacy and compounding services[51] - Subsequent to the quarter end, multiple warrant holders exercised warrants to purchase a total of 450,000 shares of common stock for $450,000 in cash proceeds in April and May 2023[110][111][112] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 performance, noting initial revenues, a $2.56 million net loss from increased expenses, and improved liquidity from $5 million IPO proceeds Overview The company offers telehealth for men's wellness, selling its non-FDA-approved 'Mango' ED product, a compounded drug, under a Section 503A exemption - The company markets a new brand of ED product named "Mango," which is produced at a compounding pharmacy and requires a physician's prescription[130] - The Mango ED product contains Tadalafil, Oxytocin, and L-Arginine and is formulated as a Rapid Dissolve Tablet (RDT) for sublingual delivery[130][135] - The product is not and will not be approved by the FDA; it is sold under an exemption provided by Section 503A of the Federal Food, Drug, and Cosmetic Act[130] Results of Operations Q1 2023 generated first revenues of $100,722 and gross profit of $57,199, but G&A expenses surged to $2.6 million, resulting in a $2.56 million net loss Q1 2023 vs Q1 2022 Performance | Metric | Q1 2023 ($) | Q1 2022 ($) | | :--- | :--- | :--- | | Revenues | $100,722 | $0 | | Gross Profit | $57,199 | $0 | | General & Administrative Expenses | $2,616,324 | $18,710 | | Net Loss | $(2,560,885) | $(19,599) | - The significant increase in G&A expenses in Q1 2023 was primarily due to: - Stock-based compensation: $764,271[145] - Placement agent fees for IPO: $400,000[145] - Advertising and marketing: $284,366[145] - Legal fees related to IPO: $139,579[145] - Salaries and benefits: $173,839[145] Liquidity and Capital Resources Cash increased to $3.8 million by Q1 2023 from $0.7 million due to the $5 million IPO, with $3.6 million working capital, sufficient for 12 months Liquidity Position | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :--- | :--- | :--- | | Cash on-hand | $3,791,216 | $682,860 | | Working Capital | $3,600,000 | $434,028 | | Total Assets | $4,115,285 | $1,003,287 | | Total Liabilities | $296,109 | $389,257 | - The increase in cash was mainly due to the consummation of its IPO on March 23, 2023, which raised gross proceeds of approximately $5 million[160][161] - Management believes current capital resources are sufficient to fund operations for the next 12 months[150] Quantitative and Qualitative Disclosures about Market Risk The company is a "smaller reporting company" as defined by SEC rules and is therefore not required to provide the information for this item - As a "smaller reporting company," the Company is not required to provide the information required by this Item[172] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[173] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[174] PART II – OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any material legal proceedings and is not aware of any such proceedings being contemplated against it - The company is not currently a party to any material legal proceeding and is not aware of any material legal or governmental proceedings contemplated to be brought against it[178] Risk Factors This section outlines significant risks including limited operating history, dependence on a single non-FDA-approved product, related-party transactions, CEO control, competition, and regulatory hurdles Risks Related to Operating History and Need for Funding The company has limited operating history, minimal revenue, and recurring losses, with a Q1 2023 net loss of $2.56 million and $4.58 million accumulated deficit, requiring future funding - The company was recently formed, has a limited operating history, and has generated only limited revenues to date[186] Financial Position and Losses | Metric | As of/For the Three Months Ended March 31, 2023 ($) | | :--- | :--- | | Net Loss | $2,560,885 | | Accumulated Deficit | $4,576,641 | - The company anticipates needing additional capital beyond the IPO proceeds to support future operations, which may not be available or could be dilutive to shareholders[187][190] Risks Related to Business Activities The company faces intense competition, depends on its single ED product compounded by a related-party pharmacy licensed in 44 states, and is exposed to fraud and data security risks - The company faces intense competition from larger, more established companies in the men's wellness and ED market, including Hims & Hers Health, Roman, Pfizer (Viagra), and Eli Lilly (Cialis)[196] - The company relies on a related-party pharmacy, Epiq Scripts, which is licensed in only 44 states, limiting the company's addressable market until additional state licenses are obtained[202] - The business is exposed to risks associated with credit card chargebacks, payment fraud, and security breaches of sensitive customer data, including health information[220][223] Risks Related to Legal, Regulatory and Government The company's business relies on its non-FDA-approved ED product qualifying for a Section 503A exemption, facing risks of FDA deeming it an "essential copy" and navigating complex regulations - The company's Mango ED product is not FDA-approved and has not undergone clinical trials for safety and efficacy; its sale relies on an exemption under Section 503A of the FFDCA, which is not guaranteed[249][253] - There is a risk the FDA may determine the product is "essentially a copy" of a commercially available FDA-approved drug, which would prohibit the company from compounding and selling it[238][253] - The business is subject to extensive and complex healthcare regulations, including state-specific laws on telehealth, corporate practice of medicine, and federal privacy laws like HIPAA[237][256][259] Risks Related to Related Party Relationships and Transactions and Our Management The company is heavily dependent on CEO Jacob D. Cohen, who holds 51.7% voting control, making it a "controlled company" and engaging in significant related-party transactions - Chairman and CEO Jacob D. Cohen beneficially owns approximately 51.7% of the company's common stock, giving him majority voting control over all corporate matters[268] - Due to Mr. Cohen's majority ownership, the company is deemed a "controlled company" under Nasdaq rules and can elect to be exempt from certain corporate governance requirements[272] - The company is significantly reliant on related-party transactions, particularly its Master Services Agreement with Epiq Scripts, a pharmacy 51% owned and controlled by the CEO, which presents potential conflicts of interest[265][266] Risks Related to Our Securities The company's stock price is highly volatile due to its small public float, risking Nasdaq delisting if it falls below $1.00, and future warrant exercises could cause dilution - The company's common stock has experienced extreme volatility since its IPO, trading as high as $4.37 and as low as $0.86 per share, a risk heightened by its small public float[292][301] - There is a risk of being delisted from Nasdaq if the company fails to meet continued listing standards, such as maintaining a minimum bid price of $1.00 per share[298] - As of the report date, there were 1,637,500 warrants outstanding; the exercise of these warrants could cause substantial dilution to existing shareholders and may depress the market price of the common stock[307] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales in Q1 2023; $4.35 million net IPO proceeds are allocated to marketing (41%), working capital (31%), personnel (21%), and software (7%) - There were no sales of unregistered securities during the quarter ended March 31, 2023[332] - The company received net proceeds of approximately $4.35 million from its IPO in March 2023[342] Planned Use of IPO Net Proceeds | Use of Proceeds | Amount ($) | Percentage (%) | | :--- | :--- | :--- | | Marketing & Operational Expenses | $1,804,000 | ~41% | | Working Capital | $1,359,000 | ~31% | | Hiring Additional Personnel | $902,000 | ~21% | | Capital Expenditures (Software) | $287,000 | ~7% | Defaults Upon Senior Securities None reported - None[348] Mine Safety Disclosures Not applicable - Not applicable[349] Other Information None reported - None[350] Exhibits This section lists all exhibits filed with Form 10-Q, including SOX certifications by executive officers and corporate documents - The report includes a list of exhibits filed, such as the Certificate of Formation, Bylaws, various material contracts, and executive employment agreements[352] - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are filed as exhibits[356]