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 March 31, 2003 [ ] 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 90-0017017 ------------------------ --------------------- (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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 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. (1) Yes X No ___ (2) Yes X No ___ ----- ------ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Not applicable. 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 May 13, 2003, 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).........................................4 Condensed Consolidated Balance Sheets-- As of March 31, 2003 and December 31, 2002 (Unaudited).......................................5 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002 (Unaudited)...............................6 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 (Unaudited)...............................7 Notes to Condensed Consolidated Financial Statements (Unaudited)..........8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................9 Item 3. Controls and Procedures.................................................11 PART II - OTHER INFORMATION Item 1. Legal Proceedings.......................................................12 Item 2. Changes in Securities...................................................12 Item 3. Defaults Upon Senior Securities.........................................12 Item 4. Submission of Matters to a Vote of Security Holders.....................12 Item 5. Other Information.......................................................12 Item 6. Exhibits and Reports on Form 8-K........................................12 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The unaudited condensed consolidated balance sheets of Amexdrug Corporation, a Nevada corporation, and subsidiary as of March 31, 2003 and December 31, 2002, and the related unaudited condensed consolidated statements of operations and cash flows for the three month periods ended March 31, 2003 and March 31, 2002, and the notes to the condensed consolidated financial statements are attached hereto as Appendix "A" and incorporated herein by reference. 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 Amexdrug Corporation's annual report on Form 10-KSB for the year ended December 31, 2002. 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 March 31, 2003, are not necessarily indicative of the results that can be expected for the year ending December 31, 2003. 4 AMEXDRUG CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, 2003 2002 - ---------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash $ 358,940 $ 338,529 Accounts receivable, net of allowance for doubtful accounts of $192,000 and $152,083 , and allowance for sales returns of $0 and 166,741, respectively 827,869 682,627 Inventory, plus allowance for sales returns of $0 and $162,255, respectively 110,588 395,939 - ---------------------------------------------------------------------------------------------------------------- Total Current Assets 1,297,397 1,417,095 - ---------------------------------------------------------------------------------------------------------------- Property and Equipment Office and computer equipment 119,828 119,828 Leasehold improvements 15,700 15,700 - ---------------------------------------------------------------------------------------------------------------- Total Property and Equipment 135,528 135,528 Less: Accumulated Depreciation (66,695) (62,220) - ---------------------------------------------------------------------------------------------------------------- Net Property and Equipment 68,833 73,308 Investment in real estate - - Deposits 200 200 - ---------------------------------------------------------------------------------------------------------------- Total Assets $ 1,366,430 $ 1,490,603 - ---------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable $ 1,318,569 $ 1,535,684 Accrued liabilities 5,289 2,344 Accrued income taxes 25,945 - Current portion of capital lease obligations 18,367 18,373 - ---------------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,368,170 1,556,401 - ---------------------------------------------------------------------------------------------------------------- Long-Term Liabilities Deferred income taxes 4,459 - Capital lease obligations, net of current portion 45,670 50,025 - ---------------------------------------------------------------------------------------------------------------- Total Long-Term Liabilities 50,129 50,025 - ---------------------------------------------------------------------------------------------------------------- Stockholders' Equity (Deficit) Common Stock - $0.001 par value; 50,000,000 shares authorized; 8,052,783 shares issued and outstanding 8,053 8,053 Additional paid-in capital 7,969 7,969 Accumulated deficit (67,891) (131,845) - ---------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity (Deficit) (51,869) (115,823) - ---------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity (Deficit) $ 1,366,430 $ 1,490,603 - ---------------------------------------------------------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements. 5 AMEXDRUG CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ----------------------------------------------------------------------------------------- Sales $ 3,836,246 $ 6,020,888 Cost of Goods Sold 3,604,970 5,848,464 - ----------------------------------------------------------------------------------------- Gross Profit 231,276 172,424 - ----------------------------------------------------------------------------------------- Operating Expenses Selling, general and administrative expense (134,793) (126,271) Interest expense (1,325) (2,780) - ----------------------------------------------------------------------------------------- Income Before Income Taxes 95,158 43,373 Provision for Income Taxes 31,204 -- - ----------------------------------------------------------------------------------------- Net Income 63,954 43,373 - ----------------------------------------------------------------------------------------- Basic and Diluted Income Per Common Share $ 0.01 $ 0.01 - ----------------------------------------------------------------------------------------- Basic and Diluted Weighted-Average Common Shares Outstanding 8,052,783 8,052,783 - ----------------------------------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements. 6 AMEXDRUG CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2003 2002 - ----------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $ 63,954 $ 43,373 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation 4,475 4,434 Bad debt expense 39,917 22,385 Changes in operating assets and liabilities: Accounts receivable (185,159) (442,349) Inventory 285,351 (351,963) Accounts payable and accrued liabilities (188,225) 347,042 Accrued settlement obligations -- (33,464) Deferred income taxes 4,459 -- - ----------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities 24,772 (410,542) - ----------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Decrease in other assets -- 2,642 - ----------------------------------------------------------------------------------------------- Net Cash Provided by Investing Activities -- 2,642 - ----------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Principal payments on capital lease obligations (4,361) (5,094) - ----------------------------------------------------------------------------------------------- Net Cash Used in Financing Activities (4,361) (5,094) - ----------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash 20,411 (412,994) Cast at Beginning of Period 338,529 562,004 - ----------------------------------------------------------------------------------------------- Cash at End of Period $ 358,940 $ 149,010 - ----------------------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid for interest $ 1,325 $ 2,780 - ----------------------------------------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements. 7 AMEXDRUG CORPORATION AND SUBSIDIARY NOTES TO CONSDENSED 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, 2002. The financial position and results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year ending December 31, 2003. 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 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 three months ended March 31, 2003 purchases from two vendors accounted for 32 and 29 percent of total purchases. As of March 31, 2003, accounts payable to these vendors accounted for 45 and 39 percent of the total accounts payable. Fair Value of 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. 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 adjusted net income (loss) by the weighted-average number of common shares and the dilutive potential common share equivalents outstanding. As of March 31, 2003 and 2002 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 three months ended March 31, 2003 and 2002 the Company made payments of approximately $0 and $33,646, respectively, on the agreements. The agreements were paid in full during May of 2002. 8 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 to reflect the change in the Company's business to the sale of pharmaceutical products. The officers and directors of the Company also changed in April 2000. 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. 9 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 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. In 2002, Allied's gross sales were approximately $22.2 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 March 31, 2003, Amexdrug reported sales of $3,836,246, 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 $2,184,642 less than the $6,020,888 of sales reported for the three months ended March 31, 2002. During the three months ended March 31, 2003 Amexdrug concentrated its efforts in selling products with a higher profit margin. As a result, total sales declined during the three months ended March 31, 2003 as compared to total sales during the three months ended March 31, 2002. However, Amexdrug sold a larger portion of higher profit margin products in the later period. Cost of goods sold for the three months ended March 31, 2003 was $3,604,970, a decrease of $2,243,494 from the $5,848,464 cost of goods sold for the three months ended March 31, 2002. Gross profit increased by $58,852 to $231,276 or 6.0% of sales for the three months ended March 31, 2003, from the $172,424 or 2.9% of sales recorded for the three months ended March 31, 2002. Selling, general and administrative expense was $134,793 for the three months ended March 31, 2003, an increase of $8,522 from the $126,271 recorded for the three months ended March 31, 2002. During the three months ended March 31, 2003, Amexdrug experienced net income of $63,954, an increase of $20,581 from the $43,373 net income earned during the three months ended March 31, 2002. Amexdrug attributes this improvement primarily to improved profit margins earned in the three month period ended March 31, 2003. 10 Liquidity and Capital Resources - March 31, 2003 ------------------------------------------------ Assets As of March 31, 2003, Amexdrug reported total current assets of $1,297,397, comprised of cash of $358,940, accounts receivable, net of $827,869 and inventory of $110,588. Total assets as of March 31, 2003 were $1,366,430, which included total current assets, plus net property and equipment of $68,833 and deposits of $200. Liabilities Amexdrug's liabilities as of March 31, 2003 consist of accounts payable of $1,318,569, accrued liabilities of $5,289, accrued income taxes of $25,945, current portion of capital lease obligations of $18,367, and total long-term liabilities of $50,129. 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. Item 3. Controls and Procedures. (a) Evaluation of disclosure controls and procedures. Jack Amin who serves as both Amexdrug Corporation's chief executive officer and its chief financial officer, after evaluating the effectiveness of Amexdrug Corporation's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of the quarterly report (the "Evaluation Date") concluded that as of the Evaluation Date, Amexdrug Corporation's disclosure controls and procedures were adequate and effective to ensure that material information relating to Amexdrug Corporation and its consolidated subsidiary would be made known to him by others within those entities, particularly during the period in which this quarterly report was being prepared. (b) Changes in internal controls. There were no significant changes in Amexdrug Corporation's internal controls or in other factors that could significantly affect Amexdrug Corporation's disclosure controls and procedures subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective actions. As a result, no corrective actions were taken. 11 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. 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 Number Description ------ ----------- 99.1 906 Certifications (b) Reports on Form 8-K. No Current Reports on Form 8-K were filed by Amexdrug during the quarter ended March 31, 2003. 12 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: May 14, 2003 By: /s/ Jack Amin -------------------- Jack Amin Director, President, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Jack Amin, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Amexdrug Corporation; 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, the 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 the 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 registrant's ability to record, process, summarize and report financial data and have identified for the registrant's 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 registrant's internal controls; and 14 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Jack Amin Date: May 14, 2003 ---------------------------------- Jack Amin, Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Jack Amin, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Amexdrug Corporation; 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, the 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 the 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 registrant's ability to record, process, summarize and report financial data and have identified for the registrant's 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 registrant's internal controls; and 14 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Jack Amin Date: May 14, 2003 ---------------------------------- Jack Amin, Chief Financial Officer