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, 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 95-2251025
------------------------ ---------------------
(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 August 11, 2003, there were
8,052,783 shares of the issuer's common stock issued and outstanding.
2
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 June 30, 2003
and December 31, 2002 (Unaudited)...............................................5
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2003 and 2002 (Unaudited)........................................6
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 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....................................................10
Item 3. Controls and Procedures.........................................................12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................13
Item 2. Changes in Securities...........................................................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................13
Item 4. Submission of Matters to a Vote of Securities Holders...........................13
Item 5. Other Matters...................................................................13
Item 6. Exhibits and Reports on Form 8-K................................................13
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 June 30, 2003 and
December 31, 2002, the related unaudited condensed consolidated statements of
operations for the three and six month periods ended June 30, 2003 and June 30,
2002, the related unaudited condensed consolidated statements of cash flows for
the six month periods ended June 30, 2003 and June 30, 2002, and the notes to
the condensed consolidated financial statements follow. The consolidated
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 consolidated financial statements included
in Amexdrug Corporation's annual report on Form 10-KSB as of December 31, 2002.
The accompanying condensed consolidated 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, 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)
June 30, December 31,
2003 2002
- ------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 268,899 $ 338,529
Accounts receivable, net of allowance for doubtful accounts of $89,000
and $152,083 , and allowance for sales returns of $0 and 166,741, respectively 317,929 682,627
Inventory, plus allowance for sales returns of $0 and
$162,255, respectively 124,025 395,939
- ------------------------------------------------------------------------------------------------------------
Total Current Assets 710,853 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 (71,171) (62,220)
- ------------------------------------------------------------------------------------------------------------
Net Property and Equipment 64,357 73,308
Investment in real estate -- --
Deposits 200 200
- ------------------------------------------------------------------------------------------------------------
Total Assets $ 775,410 $ 1,490,603
===========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 749,286 $ 1,535,684
Accrued liabilities 6,322 2,344
Accrued income taxes 9,367 --
Current portion of capital lease obligations 18,597 18,373
- ------------------------------------------------------------------------------------------------------------
Total Current Liabilities 783,572 1,556,401
- ------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Deferred income taxes 4,791 --
Capital lease obligations, net of current portion 40,884 50,025
- ------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 45,675 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 (69,859) (131,845)
- ------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) (53,837) (115,823)
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity (Deficit) $ 775,410 $ 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 For the Six Months
Ended June 30, Ended June 30,
--------------------------- ------------------------------
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------
Sales $ 2,870,874 $ 6,066,008 $ 6,707,120 $ 12,086,895
Cost of Goods Sold 2,793,264 5,881,252 6,398,234 11,729,716
- --------------------------------------------------------------------------------------------------------
Gross Profit 77,610 184,756 308,886 357,179
Operating Expenses
Selling, general and administrative expense (94,557) (230,090) (229,350) (356,361)
Interest expense (1,267) (1,592) (2,592) (4,372)
Gain from forgiveness of debt -- 8,526 -- 8,526
- --------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (18,214) (38,400) 76,944 4,972
(Provision for) Benefit from Income Taxes 16,246 -- (14,958) --
- --------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1,968) $ (38,400) $ 61,986 $ 4,972
- --------------------------------------------------------------------------------------------------------
Basic Income (Loss) Per Common Share $ -- $ -- $ 0.01 $ --
========================================================================================================
Basic Weighted-Average Common
Shares Outstanding 8,052,783 8,052,783 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 Six Months
Ended June 30,
------------------------
2003 2002
- ----------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 61,986 $ 4,972
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation 8,951 8,868
Bad debt expense -- (41,478)
Gain from forgiveness of debt -- (8,526)
Changes in operating assets and liabilities:
Accounts receivable 364,698 (191,848)
Inventory 271,914 (12,470)
Accounts payable and accrued liabilities (782,420) (295,615)
Accrued settlement obligations -- (36,684)
Accrued income taxes 9,367 --
Deferred income taxes 4,791 --
- --------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (60,713) (572,781)
- --------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Decrease in other assets -- 2,642
- --------------------------------------------------------------------------------------------
Net Cash Provided by Investing Activities -- 2,642
- --------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Checks written in excess of cash in bank -- 17,750
Principal payments on capital lease obligations (8,917) (9,615)
- --------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (8,917) 8,135
- --------------------------------------------------------------------------------------------
Net Decrease in Cash (69,630) (562,004)
Cash at Beginning of Period 338,529 562,004
- --------------------------------------------------------------------------------------------
Cash at End of Period $ 268,899 $ --
============================================================================================
Supplemental Cash Flow Information:
Cash paid for interest $ 2,592 $ 5,436
============================================================================================
See accompanying notes to condensed consolidated financial statements.
7
AMEXDRUG CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANICAL 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 six months ended June 30,
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 six months ended June 30, 2003 purchases from three vendors accounted
for 41%, 23%, and 12% of total purchases. As of June 30, 2003, accounts payable
to these vendors accounted for 77%, 0%, and 18% of the total accounts payable.
Fair Value of Financial Instruments -- The carrying amount of capital lease
obligations approximate fair value based on current interest rates available to
the Company.
Investment in Real Estate -- On December 19, 2002, Jack Amin and his wife
contributed four parcels of real estate to the Company. The real estate has been
recorded at its historical cost of $0. The real estate is not used in the
Company's operations and is held for sale.
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.
8
AMEXDRUG CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 2 -- 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 8.09 percent. The length of the
lease did not change.
NOTE 3 -- CONTINGENCIES
On June 9, 2003 a lawsuit was filed in the Superior Court of the State of
California, County of Los Angeles against the Company, its predecessor
corporation Amexdrug Corporation, a California corporation, its wholly owned
subsidiary Allied Med, Inc., and Jack Amin. The plaintiffs allege in the
complaint that the parties entered into a one page finders agreement on April
10, 2000 relating to the acquisition of Harlyn Products, Inc., and that the
plaintiffs are entitled to receive a finder's fee equal to 7.5% (approximately
603,959 shares) of the fully diluted shares of the Company with a value not less
than $600,000. Plaintiffs allege causes of action for breach of contract, for
specific performance, for services rendered and for unjust enrichment.
Plaintiffs seek compensation for damages, legal fees, costs and interest. The
Company has not yet evaluated the likelihood of loss from the claim, but it
intends to deny any liability and to vigorously defend the lawsuit. Accordingly,
no liability relating to the claim has been accrued in the accompanying
financial statements.
9
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.
Allied was formed as an Oregon corporation in October 1997, to operate
in the pharmaceutical wholesale business of selling brand name and generic
10
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 June 30, 2003, Amexdrug reported sales of
$2,870,874, 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 is $3,195,134 less than the $6,066,008 of sales reported for the
three months ended June 30, 2002. For the six months ended June 30, 2003, sales
reported by Amexdrug were $6,707,120, which is $5,379,775 less than the
$12,086,895 of sales reported for the six months ended June 30, 2002. During the
three and six month periods ended June 30, 2003, Amexdrug experienced a decline
in total sales due to a weaker economy, Amexdrug's search for better discount
products to sell, and increased competition. As a result, total sales declined
during the three and six month periods ended June 30, 2003 as compared to total
sales during the three and six month periods ended June 30, 2002. Cost of goods
sold for the three months ended June 30, 2003 was $2,793,264, a decrease of
$3,087,988 over the $5,881,252 cost of goods sold for the three months ended
June 30, 2002. Cost of goods sold for the six months ended June 30, 2003 was
$6,398,234, a decrease of $5,331,482 over the $11,729,716 cost of goods sold for
the six months ended June 30, 2002. During the three months ended June 30, 2003
gross profit decreased by $107,146 to $77,610 or 2.7% of sales for the three
months ended June 30, 2003, from the $184,756 or 3.0% of sales recorded for the
three months ended June 30, 2002. For the six months ended June 30, 2003 gross
profit decreased by $48,293 to $308,886 or 4.6% of sales from the $357,179 or
3.0% of sales recorded for the six months ended June 30, 2002.
Selling, general and administrative expense was $94,557 for the three
months ended June 30, 2003, a decrease of $135,533 from the $230,090 recorded
for the three months ended June 30, 2002. For the six months ended June 30,
2003, Amexdrug reported selling, general and administrative expense of $229,350,
a decrease of $127,011 from the $356,361 reported for the six months ended June
30, 2002. This decrease in selling, general and administrative expense is
largely attributable to a bad debt expense of approximately $123,000 taken in
the three month period ended June 30, 2002.
During the three months ended June 30, 2003, Amexdrug experienced a net
loss of $1,968, as compared to the $38,400 net loss incurred for the three
months ended June 30, 2002. During the six months ended June 30, 2003, Amexdrug
11
experienced net income of $61,986, an increase of $57,014 from the $4,972 net
income reported for the six months ended June 30, 2002. Amexdrug attributes its
improvement primarily to increasing its sales of higher profit margin products
during the first quarter of 2003, offset somewhat by a decline in profit margin
during the second quarter, and also decreasing its selling, general and
administrative expenses.
Liquidity and Capital Resources - June 30, 2003
-----------------------------------------------
As of June 30, 2003, Amexdrug reported total current assets of
$710,853, comprised of cash of $268,899, accounts receivable, net of $317,929
and inventory of $124,025. Total assets as of June 30, 2003 were $775,410, which
included total current assets, plus net property and equipment of $64,357 and
deposits of $200.
Amexdrug's liabilities as of June 30, 2003 consist of accounts payable
of $749,286, accrued liabilities of $6,322, accrued income taxes of $9,367,
current portion of capital lease obligations of $18,597, and total long-term
liabilities of $45,675.
During the six months ended June 30, 2003, Amexdrug used $60,713 in
operating activities compared to $572,781 for the six months ended June 30,
2002. The primary adjustments to reconcile net income to net cash used in
operating activities during 2003 were as follows: a decrease in accounts
receivable of $364,698, a decrease in inventory of $271,914 and a decrease in
accounts payable and accrued liabilities of $782,420. Cash decreased during the
six months ended June 30, 2003 by $69,630 compared to a decrease during 2002 of
$562,004. Amexdrug had $268,889 of cash at June 30, 2003 and management
anticipates that operations will continue to use cash during the next twelve
months. However, management estimates that cash currently available will be
sufficient to sustain operations and does not anticipate that Amexdrug will need
to obtain additional financing during the next twelve months.
Item 3. Controls and Procedures.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic SEC
reports. It should be noted that the design of any system of controls is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.
In addition, there has been no change in our internal control over
financial reporting during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB REPORT
REFLECT MANAGEMENT'S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY MATERIALLY.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On June 9, 2003 a lawsuit was filed in the Superior Court of the
State of California, County of Los Angeles (Civil No. SC077528) against
Amexdrug, its predecessor corporation Amexdrug Corporation, a California
corporation, its wholly owned subsidiary Allied Med, Inc., and Jack Amin. The
lawsuit was filed by Alan Stone & Company, LLC and Harold Weisbrod. The
plaintiffs allege in the Complaint that the parties entered into a one page
finders agreement on April 10, 2000 relating to the acquisition of Harlyn
Products, Inc., and that the plaintiffs are entitled to receive a finder's fee
equal to 7.5% of the fully diluted shares of the company. Plaintiffs allege
causes of action for breach of contract, for specific performance, for services
rendered and for unjust enrichment. Plaintiffs seek compensation for damages,
legal fees, costs and interest. Amexdrug denies any liability, and intends to
vigorously defend the lawsuit.
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
------ -----------
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
13
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer 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, 2003.
14
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 12, 2003 By: /s/ Jack Amin
----------------------------------------
Jack Amin
Director, President, Chief Executive Officer,
Chief Financial Officer and Chief
Accounting Officer
15