U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission File No. 0-7473
Amexdrug Corporation
--------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
NEVADA 95-2251025
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or Organization)
8909 West Olympic Boulevard, Suite 112
Beverly Hills, California 90211
(Address of Principal Executive offices)
Issuer's Telephone Number: (310) 855-0475
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: As of June 30, 2002, there were
8,052,783 shares of the issuer's common stock issued and outstanding.
AMEXDRUG CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited).......................................................2
Condensed Consolidated Balance Sheets-- As of June 30, 2002
and December 31, 2001 (Unaudited).....................................................3
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2002 and 2001 (Unaudited)..............................................4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2002 and 2001 (Unaudited)..............................................5
Notes to Condensed Consolidated Financial Statements (Unaudited)........................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................................8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................10
Item 2. Changes in Securities.................................................................10
Item 3. Quantitaqtive and Qualitative Disclosures About Market Risk...........................10
Item 4. Submission of Matters to a Vote of Securities Holders.................................10
Item 5. Other Matters.........................................................................11
Item 6. Exhibits and Reports on Form 8-K......................................................11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited condensed consolidated balance sheets of Amexdrug
Corporation, a Nevada corporation, and subsidiary as of June 30, 2002 and
December 31, 2001, and the related unaudited condensed consolidated statements
of operations and cash flows for the three and six month periods ended June 30,
2002 and June 30, 2001, and the notes to the condensed consolidated financial
statements follow. The financial statements have been prepared by Amexdrug's
management, and are condensed; therefore they do not include all information and
notes to the financial statements necessary for a complete presentation of the
financial position, results of operations and cash flows, in conformity with
accounting principles generally accepted in the United States of America, and
should be read in conjunction with the annual financial statements included in
the annual report on Form 10-KSB as of December 31, 2001.
The accompanying financial statements reflect all adjustments which
are, in the opinion of management, necessary to present fairly the results of
operations and financial position of Amexdrug Corporation consolidated with
Allied Med, Inc., its wholly owned subsidiary, and all such adjustments are of a
normal recurring nature. The names "Amexdrug", "we", "our" and "us" used in this
report refer to Amexdrug Corporation.
Operating results for the quarter ended June 30, 2002, are not
necessarily indicative of the results that can be expected for the year ending
December 31, 2002.
2
AMEXDRUG CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2002 2001
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ASSETS
Current Assets
Cash.......................................................................... $ - $ 562,004
Accounts receivable, net of allowance for doubtful accounts of $19,884
and $61,362, respectively................................................... 1,136,717 920,716
Inventory...................................................................... 248,194 235,724
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Total Current Assets....................................................... 1,384,911 1,718,444
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Property and Equipment
Office and computer equipment.................................................. 119,828 119,828
Leasehold improvements......................................................... 15,700 15,700
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Total Property and Equipment............................................... 135,528 135,528
Less accumulated depreciation.................................................. (40,214) (31,346)
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Net Property and Equipment................................................. 95,314 104,182
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Deposits ........................................................................... 200 2,842
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Total Assets .....................................................................$ 1,480,425 $ 1,825,468
============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Checks written in excess of cash in bank.......................................$ 17,750 $ -
Accounts payable............................................................... 1,474,837 1,768,264
Accrued liabilities............................................................ 4,136 1,720
Accrued settlement obligations................................................. - 50,737
Current portion of capital lease obligations................................... 17,306 18,369
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Total Current Liabilities.................................................. 1,514,029 1,839,090
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Long-Term Liabilities
Accrued settlement obligations, net of current portion......................... - 7,875
Capital lease obligations, net of current portion.............................. 59,207 76,285
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Total Long-Term Liabilities................................................ 59,207 84,160
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Commitments and Contingencies
Stockholders' Deficit
Common stock, $0.001 par value; 50,000,000 shares authorized;
8,052,783 issued and outstanding............................................. 8,053 8,053
Additional paid in capital..................................................... 7,969 7,969
Accumulated deficit............................................................ (108,833) (113,805)
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Total Stockholder's Deficit................................................ (92,811) (97,782)
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Total Liabilities and Stockholders' Deficit.........................................$ 1,480,425 $ 1,825,468
============= ==============
See accompanying notes to condensed consolidated financial statements.
3
AMEXDRUG CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------- ---------------------------
2002 2001 2002 2001
-------------- ------------ ------------ ------------
Sales..................................................... $ 6,066,008 $ 5,704,332 $ 12,086,895 $ 9,771,065
Cost of Goods Sold........................................ 5,881,252 5,609,446 11,729,716 9,606,923
------------- ------------ ------------ ------------
Gross Profit.............................................. 184,756 94,886 357,179 164,142
------------- ------------ ------------ ------------
Selling, General and Administrative Expense............... (230,090) (109,452) (356,361) (190,137)
Interest Expense.......................................... (1,592) - (4,372) -
Gain from Forgiveness of Debt............................. 8,526 - 8,526 -
Interest and Other Income................................. - (253) - (485)
------------- ------------ ------------ ------------
Net Income (Loss)......................................... $ (38,400) $ (14,313) $ 4,972 $ (25,510)
============== ============ ============ ============
Basic and Diluted Income (Loss) Per
Common Share........................................... $ - $ - $ - $ -
============== ============ ============ ============
Basic and Diluted Weighted-Average Common
Share Outstanding....................................... 8,052,783 8,052,783 8,052,783 8,052,783
============= ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
AMEXDRUG CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six
Months Ended
June 30,
-------------------------------
2002 2001
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Cash Flows From Operating Activities
Net income (loss)..............................................................$ 4,972 $ (25,510)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation................................................................. 8,868 9,946
Bad debt expense............................................................. (41,478) 9,035
Gain from forgiveness of debt................................................ (8,526) -
Changes in operating assets and liabilities:
Accounts receivable........................................................ (191,848) (228,366)
Inventory.................................................................. (12,470) 76,927
Prepaid expenses........................................................... - (78)
Accounts payable and accrued liabilities................................... (295,615) 111,700
Accrued settlement obligations............................................. (36,684) (46,304)
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Net Cash Used In Operating Activities................................... (572,781) (92,650)
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Cash Flows From Investing Activities
Decrease in other assets....................................................... 2,642 -
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Net Cash Provided By Investing Activities............................... 2,642 -
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Cash Flows From Financing Activities
Checks written in excess of cash in bank....................................... 17,750
Principal payments on capital lease obligations................................ (9,615) (1,699)
Capital contributions by shareholder........................................... - 11,246
Distributions to shareholders.................................................. - (33,673)
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Net Cash Provided By (Used In) Financing Activities..................... 8,135 (24,126)
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Net Decrease in Cash................................................................ (562,004) (116,776)
Cash at Beginning of Period......................................................... 562,004 455,286
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Cash at End of Period...............................................................$ - $ 338,510
============= ==============
Supplemental Cash Flows Information
Cash paid for interest.........................................................$ 5,436 $ -
============= ==============
See accompanying notes to condensed consolidated financial statements.
5
AMEXDRUG CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- Organization and Nature of Operations
Condensed Financial Statements -- The accompanying condensed financial
statements have been prepared by the Company and are unaudited. In the opinion
of management, the accompanying unaudited financial statements contain all
necessary adjustments for fair presentation, consisting of normal recurring
adjustments except as disclosed herein.
The accompanying unaudited interim financial statements have been condensed
pursuant to the rules and regulations of the Securities and Exchange Commission;
therefore, certain information and disclosures generally included in financial
statements have been condensed or omitted. The condensed financial statements
should be read in connection with the Company's annual financial statements
included in its annual report on Form 10-KSB as of December 31, 2001. The
financial position and results of operations for the three and six months ended
June 30, 2002 are not necessarily indicative of the results to be expected for
the full year ending December 31, 2002.
Use of Estimates --The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
The Company's historical revenues and receivables have been derived solely from
the pharmaceutical industry. Although the Company primarily sells products on a
cash basis, some limited sales are made under credit terms. The Company performs
ongoing credit evaluations of its customers' financial condition and usually
requires a delayed check depository from its customers at the date products are
shipped. The Company maintains an allowance for uncollectible accounts
receivable based upon the expected collectibility of all accounts receivable.
During the six months ended June 30, 2002 purchases from two vendors accounted
for 42 and 12 percent of total purchases. As of June 30, 2002, accounts payable
to these vendors accounted for 59 and 34 percent of the total accounts payable.
Concentration of Credit Risk and Fair Value of Financial Instruments --The
carrying amounts reported in the accompanying financial statements for cash,
accounts receivable and accounts payable approximate fair values because of the
immediate or short-term maturities of these financial instruments. The carrying
amounts of the Company's debt obligations approximate fair value based on
current interest rates available to the Company.
Revenue Recognition --The Company generates revenues from the resale of
pharmaceuticals, over-the-counter products, health and beauty care products and
nutritional supplements. The Company accounts for these revenues at the time of
shipment to and acceptance by the customer.
6
Net Income (Loss) Per Common Share--Basic income (loss) per common share is
computed by dividing net income (loss) by the weighted-average number of common
shares outstanding. Diluted income (loss) per common share is computed by
dividing net income (loss) by the weighted average number of common shares and
the dilutive potential common share equivalents outstanding. As of June 30, 2002
and 2001 the Company did not have any potential common share equivalents.
NOTE 2 -- ACCRUED SETTLEMENT OBLIGATIONS
In 1999, the Company entered into settlement agreements with numerous vendors
due to the Company's inability to pay the vendors. Under these settlement
agreements the Company agreed to pay these vendors a total of $588,140. The
Company was required to pay a large portion at the initial execution of the
agreement and the remaining balance based on various payment plans. The payment
plans ranged from 24 to 36 months through May 2003. During the six months ended
June 30, 2002 and 2001 the Company made payments of approximately $36,684 and
$46,304 on the agreements. During the quarter ended June 30, 2002, the Company
negotiated with the final vendor to offset accounts receivable credits totaling
approximately $46,863 against the remaining settlement payable of approximately
$17,325. The Company received cash for the difference of approximately $29,538.
NOTE 3 - FORGIVENESS OF DEBT
During the quarter ended June 30, 2002, the Company renegotiated the terms of
one of its capital leases. The balance due under the lease agreement was
decreased from $60,972 to 52,446 resulting in a forgiveness of debt of $8,526.
The monthly payments were decreased from $1,692 to $1,274 and the effective
interest rate was decreased from 13.98 percent to 8.09 percent. The length of
the lease did not change.
The Company has elected to apply the early application of Statement of Financial
Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," which provides
that the net gain or loss from extinguishment of debt no longer is required to
be classified as an extraordinary item.
7
Item 2. Management's Discussion and Analysis or Plan of Operation.
(a) Plan of Operation.
Not applicable.
(b) Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Amexdrug Corporation is located 8909 West Olympic Boulevard, Suite 112,
Beverly Hills, California 90211. Its phone number is (310) 855-0475. Its fax
number is (310) 855-0477. Its website is www.amexdrug.com. The President of
Amexdrug has had experience working in the pharmaceutical industry for the past
20 years.
Through its wholly-owned subsidiary, Allied Med, Inc., Amexdrug is
engaged in the pharmaceutical wholesale business of selling brand name and
generic pharmaceutical products, over-the-counter (OTC) and health and beauty
products in 7 or 8 states. Amexdrug is expanding its business, and it would like
to eventually sell and distribute products in all 50 states.
Amexdrug Corporation was initially incorporated under the laws of the
State of California on April 30, 1963 under the name of Harlyn Products, Inc.
Harlyn Products, Inc. was engaged in the business of selling jewelry to
department stores and retail jewelry stores until the mid-1990s.
The name of the Company was changed to Amexdrug Corporation in April
2000, and the domicile of the Company was changed from California to Nevada in
December 2001. At that time the Company changed its fiscal year end from June 30
to December 31.
On December 31, 2001, Amexdrug acquired all of the issued and
outstanding common shares of Allied Med, Inc. ("Allied") in a share exchange.
Amexdrug acquired all 50,000 issued and outstanding shares of Allied common
stock from its sole shareholder, Mr. Jack Amin, in exchange for 7,000,000
restricted common shares of Amexdrug and the assumption of a $100,000 promissory
note, and all accrued interest thereon owed by Mr. Amin to Allied. At all times
during the negotiations of the transaction, Mr. Amin was an officer, director
and controlling shareholder of both companies. Consideration for the acquisition
was determined through negotiations between the boards of directors of both
companies and was based on Allied's past operating history and future potential
growth.
Allied was formed as an Oregon corporation in October 1997, to operate
in the pharmaceutical wholesale business of selling brand name and generic
pharmaceutical products, over-the-counter (OTC) and health and beauty products.
In 1998, Allied's gross sales were approximately $2.8 million. In 1999, Allied's
8
gross sales exceeded $5 million. In 2000, Allied's gross sales exceeded $8
million. In 2001, Allied's gross sales were approximately $21.2 million.
Amexdrug has assumed the operations of Allied as its primary
operations, and Amexdrug intends to build on the wholesale operations of Allied.
The accompanying financial information includes the operations of
Allied Med, Inc. for all periods presented and the operations of Amexdrug
Corporation from April 25, 2000.
Results of Operations
---------------------
For the three months ended June 30, 2002, Amexdrug reported sales of
$6,066,008, comprised entirely of income from the Allied Med, Inc.
pharmaceutical wholesale business of selling brand name and generic
pharmaceutical products, and over-the-counter (OTC) and health and beauty
products. This was $361,676 more than the $5,704,332 of sales reported for the
three months ended June 30, 2001. For the six months ended June 30, 2002, sales
reported by Amexdrug were $12,086,895, which is $2,315,830 more than the
$9,771,065 reported for the six months ended June 30, 2001. Cost of goods sold
for the three months ended June 30, 2002 was $5,881,252, an increase of $271,806
over the $5,609,446 cost of goods sold for the three months ended June 30, 2001.
Cost of goods sold for the six months ended June 30, 2002 was $11,729,716, an
increase of $2,122,793 over the $9,606,923 cost of goods sold for the six months
ended June 30, 2001. During the three months ended June 30, 2002 gross profit
increased by $89,870 to $184,756 or 3.0% of sales for the three months ended
June 30, 2002, from the $94,886 or 1.7% of sales recorded for the three months
ended June 30, 2001. For the six months ended June 30, 2002 gross profit
increased by $193,037 to $357,179 or 3.0% of sales from the $164,142 or 1.7% of
sales recorded for the six months ended June 30, 2001.
Selling, general and administrative expense was $230,090 for the three
months ended June 30, 2002, an increase of $120,638 from the $109,452 recorded
for the three months ended June 30, 2001. For the six months ended June 30,
2002, Amexdrug reported selling, general and administrative expense as $356,361,
an increase of $166,224 from the $190,137 reported for the six months ended June
30, 2001. This increase in selling, general and administrative expense is
attributable to an increase in expenses related to the increase in the Company's
operations.
During the three months ended June 30, 2002, Amexdrug experienced a net loss of
$38,400, as compared to the $14,313 net loss incurred for the three months ended
June 30, 2001. During the six months ended June 30, 2002, Amexdrug experienced
net income of $4,972 as compared to the $25,510 net loss reported for the six
months ended June 30, 2001.
9
Liquidity and Capital Resources - June 30, 2002
-----------------------------------------------
Assets
As of June 30, 2002, Amexdrug reported total current assets of
$1,384,911, comprised of cash of $0.00, accounts receivable, net of $1,136,717
and inventory of $248,194. Total assets as of June 30, 2002 were $1,480,425,
which included total current assets, plus net property and equipment of $95,314
and deposits of $200.
Liabilities
Amexdrug's liabilities as of June 30, 2002 consist of checks written in
excess of cash in bank of $17,750, accounts payable of $1,474,837, accrued
liabilities of $4,136, current portion of capital lease obligations of $17,306,
and total long-term liabilities of $59,207.
Forward-looking statements
--------------------------
This document includes various forward-looking statements with respect
to future operations of Amexdrug that are subject to risks and uncertainties.
Forward-looking statements include the information concerning expectations of
future results of operations and such statements preceded by, followed by or
that otherwise include the words "believes," "expects," "anticipates,"
"intends," "estimates" or similar expressions. For those statements, Amexdrug
claims the protection of the safe harbor for forward-looking statements
contained in the Private Litigation Reform Act of 1995. Actual results may vary
materially.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 2. Changes in Securities.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
10
Item 4. Submission of Matters to a Vote of Security Holders.
None; not applicable.
Item 5. Other Information.
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed by Amexdrug during the
quarter ended June 30, 2002.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMEXDRUG CORPORATION
Date: August 13, 2002 By /s/ Jack Amin
--------------
Jack Amin
Director, President, Chief Executive Officer,
Chief Financial Officer and Chief
Accounting Officer
11
Exhibit 99.1
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 quarterly report of Amexdrug Corporation (the "Company")
on Form 10-QSB for the period ended June 30, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Jack Amin, Chief
Executive Officer and Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, that, to the best of my knowledge and belief:
(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 represents, in all
material respects, the financial condition and result of
operations of the Company.
/s/ Jack Amin
-------------
Jack Amin
Chief Executive Officer and
Chief Financial Officer
Date: August 14, 2002