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, 2004 [ ] 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 10, 2004, 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, 2004 and December 31, 2003 (Unaudited)..................5 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 (Unaudited)...................................................6 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (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, 2004 and December 31, 2003, the related unaudited condensed consolidated statements of operations for the three and six month periods ended June 30, 2004 and June 30, 2003, the related unaudited condensed consolidated statements of cash flows for the six month periods ended June 30, 2004 and June 30, 2003, 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, 2003. 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, 2004, are not necessarily indicative of the results that can be expected for the year ending December 31, 2004. -4- AMEXDRUG CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 2004 2003 - -------------------------------------------------------------------------------- ASSETS Current Assets Cash $ 100,844 $ 1,185 Accounts receivable, net of allowance for doubtful accounts of $95,000and $95,000, respectively 315,580 405,224 Inventory 84,108 137,948 - -------------------------------------------------------------------------------- Total Current Assets 500,532 544,357 - -------------------------------------------------------------------------------- Property and Equipment Office and computer equipment 133,641 133,641 Leasehold improvements 15,700 15,700 - -------------------------------------------------------------------------------- Total Property and Equipment 149,341 149,341 Less: Accumulated depreciation (94,349) (82,863) - -------------------------------------------------------------------------------- Net Property and Equipment 54,992 66,478 Investment in real estate -- -- Deposits 1,100 1,100 - -------------------------------------------------------------------------------- Total Assets $ 556,624 $ 611,935 - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Checks written in excess of cash in bank $ -- $ 41,024 Accounts payable 449,096 586,116 Accrued liabilities 18,379 14,972 Accrued settlement obligation 140,000 -- Accrued income taxes -- -- Current portion of capital lease obligations 24,874 24,545 - -------------------------------------------------------------------------------- Total Current Liabilities 632,349 666,657 - -------------------------------------------------------------------------------- Long-Term Liabilities Deferred income taxes -- 1,004 Capital lease obligations, net of current portion 22,602 35,076 - -------------------------------------------------------------------------------- Total Long-Term Liabilities 22,602 36,080 - -------------------------------------------------------------------------------- Stockholders' 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 (114,349) (106,824) - -------------------------------------------------------------------------------- Total Stockholders' Deficit (98,327) (90,802) - -------------------------------------------------------------------------------- Total Liabilities and Stockholders' Deficit $ 556,624 $ 611,935 - -------------------------------------------------------------------------------- See accompanying note 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, --------------------------- -------------------------- 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------ Sales $ 1,997,336 $ 2,870,874 $ 4,236,089 $ 6,707,120 Cost of Goods Sold 1,795,682 2,793,264 3,938,606 6,398,234 - ------------------------------------------------------------------------------------------------------ Gross Profit 201,654 77,610 297,483 308,886 Operating Expenses Selling, general and administrative expense (89,257) (94,557) (163,830) (229,350) Interest expense (937) (1,267) (2,182) (2,592) - ------------------------------------------------------------------------------------------------------ Income From Operations 111,460 (18,214) 131,471 76,944 Settlement Expense -- (140,000) -- - ------------------------------------------------------------------------------------------------------ Income (Loss) Before Income Taxes 111,460 (18,214) (8,529) 76,944 Provision for Income Taxes -- 16,246 1,004 (14,958) - ------------------------------------------------------------------------------------------------------ Net Income (Loss) $ 111,460 $ (1,968) $ (7,525) $ 61,986 - ------------------------------------------------------------------------------------------------------ Basic Income (Loss) Per Common Share $ 0.01 $ -- $ -- $ 0.01 - ------------------------------------------------------------------------------------------------------ Basic Weighted-Average Common Shares Outstanding 8,052,783 8,052,783 8,052,783 8,052,783 - ------------------------------------------------------------------------------------------------------ See accompanying note to condensed consolidated financial statements -6- AMEXDRUG CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, ---------------------- 2004 2003 - ----------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income (loss) $ (7,525) $ 61,986 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 11,486 8,951 Settlement expense 140,000 - Changes in operating assets and liabilities: Accounts receivable 89,644 364,698 Inventory 53,840 271,914 Accounts payable and accrued liabilities (133,613) (782,420) Accrued income taxes - 9,367 Deferred income taxes (1,004) 4,791 - ----------------------------------------------------------------------------- Net Cash Provided by Operating Activities 152,828 (60,713) - ----------------------------------------------------------------------------- Net Cash Provided by Investing Activities - - - ----------------------------------------------------------------------------- Cash Flows from Financing Activities: Payment of checks written in excess of cash in bank (41,024) - Principal payments on capital lease obligations (12,145) (8,917) - ----------------------------------------------------------------------------- Net Cash Used in Financing Activities (53,169) (8,917) - ----------------------------------------------------------------------------- Net Change in Cash 99,659 (69,630) Cash at Beginning of Period 1,185 338,529 - ----------------------------------------------------------------------------- Cash at End of Period $ 100,844 268,899 - ----------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid for interest $ 2,182 $ 2,592 - ----------------------------------------------------------------------------- See accompanying note 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, 2003. The financial position and results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year ending December 31, 2004. 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, 2004, purchases from three vendors accounted for 44%, 18%, and 17% of total purchases. As of June 30, 2004, accounts payable to these vendors accounted for 25%, 32%, and 0% of the total accounts payable, respectively. 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. On September 29, 2003, another four parcels were contributed. 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. Basic 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. No agreements or contracts exist that have created any potentially issuable common shares. -8- AMEXDRUG CORPORATION AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS NOTE 2 -- 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, Harlyn Products, Inc., a California corporation, the Company's wholly owned subsidiary, Allied Med, Inc., and the Company's principal shareholder, Jack Amin. The plaintiffs allege in the complaint that the parties entered into a one page finder's 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 and unspecified lost profits. 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. During the first quarter of 2004, the parties, including the plaintiffs, entered into a tentative agreement to settle the plaintiff's claim by the transfer of property, including 300,000 shares of Amexdrug common stock, to the plaintiffs. The fair value of the property was $140,000. Due to the inability of the plaintiffs to obtain an opinion that the shares of Amexdrug common stock were freely tradable, the Court has determined that there was no agreement between the parties. The claim is set to be heard by the Court in September 2004. Management has determined, with the advice of its legal counsel, that the amount of loss from the claim is at least $140,000 and the Company has accrued that amount in the accompanying financial statements. However, the potential loss is not currently determinable and may exceed the amount accrued. In response to an action initiated by the Company against one of its vendors, the vendor filed a counterclaim for $365,603, plus costs and attorney fees. At dispute are pharmaceutical products the Company contends were nonconforming. In its action, the Company seeks damages for losses suffered as a result of the delivery of the non-conforming products. The case is in the early stages of discovery. The Company has not evaluated the likelihood of loss from the counterclaim, but intends to prosecute its action and defend the counterclaim vigorously. Accordingly, no liability relating to the counterclaim has been accrued in the accompanying financial statements. The Franchise Tax Board of the State of California has asserted that the Amexdrug Corporation (formerly Harlyn Products, Inc.) owes approximately $544,822 in franchise taxes from periods prior to April 2000. However, as stipulated in the bankruptcy court's order dated April 25, 2000, Jack Amin purchased 1,000,000 common shares of Harlyn Products, Inc. free of any and all liens or encumbrances. Accordingly, management contends that the Company has no liability relating to the claim and no amounts have 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 at 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. Shares of Amexdrug common stock are traded on the OTC Bulletin Board under the symbol AXRS, and on the Frankfurt Stock Exchange in Germany under the symbol AZC. 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. -10- 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. 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, 2004, Amexdrug reported sales of $1,997,336, 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 $873,538 less than the $2,870,874 of sales reported for the three months ended June 30, 2003. For the six months ended June 30, 2004, sales reported by Amexdrug were $4,236,089, which is $2,471,031 less than the $6,707,120 of sales reported for the six months ended June 30, 2003. During the three and six month periods ended June 30, 2004, Amexdrug experienced a decline in total sales due to increased competition (both domestic and foreign) and Amexdrug's search for better discount products to sell. Amexdrug believes that some consumers are purchasing larger quantities of drugs from Canadian or other foreign suppliers, and this has adversely impacted the Company's sales to domestic pharmacies. Cost of goods sold for the three months ended June 30, 2004 was $1,795,682, a decrease of $997,582 over the $2,793,264 cost of goods sold for the three months ended June 30, 2003. Cost of goods sold for the six months ended June 30, 2004 was $3,938,606, a decrease of $2,459,628 over the $6,398,234 cost of goods sold for the six months ended June 30, 2003. During the three months ended June 30, 2004 gross profit increased by $124,044 to $201,654 or 10.1% of sales for the three months ended June 30, 2004, from the $77,610 or 2.7% of sales recorded for the three months ended June 30, 2003. For the six months ended June 30, 2004 gross profit decreased by $11,403 to $297,483 or 7.0% of sales from the $308,886 or 4.6% of sales recorded for the six months ended June 30, 2003. Although sales decreased during the three and six month periods ended June 30, 2004 compared to sales in the three and six month periods ended June 30, 2003, profit margins increased during these same time periods due to the Company's sale of products having larger profit margins during the later periods. Selling, general and administrative expense was $89,257 for the three months ended June 30, 2004, a decrease of $5,300 from the $94,557 recorded for the three months ended June 30, 2003. For the six months ended June 30, 2004, Amexdrug reported selling, general and administrative expense of $163,830, a decrease of $65,520 from the $229,350 reported for the six months ended -11- June 30,2003. This decrease in selling, general and administrative expense is largely attributable to decreases in bad debt expense and shipping expense. During the three months ended June 30, 2004, Amexdrug experienced net income of $111,460, as compared to the $1,968 net loss incurred for the three months ended June 30, 2003. During the six months ended June 30, 2004, Amexdrug experienced a net loss of $7,525, a decrease of $69,511 from the $61,986 net income reported for the six months ended June 30, 2003. Amexdrug attributes this change primarily to decreases in sales during the later periods, partially off set due to sales of higher profit margin products during the first six months of 2004, and also to decreasing its selling, general and administrative expenses. Amexdrug incurred a non-recurring non-cash settlement expense of $140,000 during the three months ended March 31, 2004 in order to settle litigation commenced in June 2003. In the settlement, Jack Amin agreed to transfer 360,000 shares of Amexdrug common stock owned personally by him to the plaintiffs, and the Company agreed to transfer two parcels of its real estate that were recently transferred to the Company by Jack Amin with an estimated value of $40,000 and pay $25,000 with interest at five percent per annum over twenty four months, to the plaintiffs. No similar expenses were incurred in the three months ended June 30, 2004 or in the three or six months ended June 30, 2003. Liquidity and Capital Resources - June 30, 2004 ----------------------------------------------- As of June 30, 2004, Amexdrug reported total current assets of $500,532, comprised of cash of $100,844, accounts receivable, net of $315,580 and inventory of $84,108. Total assets as of June 30, 2004 were $556,624, which included total current assets, plus net property and equipment of $54,992 and deposits of $1,100. Amexdrug's liabilities as of June 30, 2004 consist of accounts payable of $449,096, accrued settlement obligation of $140,000, accrued liabilities of $18,379, current portion of capital lease obligations of $24,874, and total long-term liabilities of $22,602. During the six months ended June 30, 2004, Amexdrug's operating activities provided $152,828 cash compared to $60,713 cash used in Amexdrug's operating activities in the six months ended June 30, 2003. The primary adjustments to reconcile net loss to net cash provided by operating activities during the first six months of 2004 were as follows: depreciation expense of $11,486, an increase from a non-cash settlement expense of $140,000, a decrease in accounts receivable of $89,644, a decrease in inventory of $53,840, and a decrease in accounts payable and accrued liabilities of $133,613. Cash increased during the six months ended June 30, 2004 by $99,659 compared to a decrease during the six months ended June 30, 2003 of $69,630. Cash from operating activities in the six months ended June 30, 2004 increased primarily due to a decrease in accounts receivable. Amexdrug had $100,844 of cash at June 30, 2004, and management anticipates that operations will 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. -12- 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 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. As of the end of the period covered by this report, Amexdrug carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, Jack Amin, of the effectiveness of the design and operation of Amexdrug's disclosure controls and procedures. Based on this evaluation, Mr. Amin who is our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in timely alerting him to material information required to be included in Amexdrug's 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. PART II - OTHER INFORMATION Item 1. Legal Proceedings. Amexdrug is a party to material pending legal proceedings which are described below. To the best of Amexdrug's knowledge, no governmental authority or other party has threatened or is contemplating the filing of any material legal proceeding against Amexdrug, except as described below. 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, Harlyn Products, Inc., a California corporation, the Company's -13- wholly owned subsidiary, Allied Med, Inc., and the Company's principal shareholder, Jack Amin. The plaintiffs allege in the complaint that the parties entered into a one page finder's 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 and unspecified lost profits. 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. During the first quarter of 2004, the parties, including the plaintiffs, entered into a tentative agreement to settle the plaintiff's claim by the transfer of property, including 300,000 shares of Amexdrug common stock, to the plaintiffs. The fair value of the property was $140,000. Due to the inability of the plaintiffs to obtain an opinion that the shares of Amexdrug common stock were freely tradable, the Court has determined that there was no agreement between the parties. The claim is set to be heard by the Court in September 2004. Management has determined, with the advice of its legal counsel, that the amount of loss from the claim is at least $140,000 and the Company has accrued that amount in the accompanying financial statements. However, the potential loss is not currently determinable and may exceed the amount accrued. In response to an action initiated by the Company against one of its vendors, the vendor filed a counterclaim for $365,603, plus costs and attorney fees. At dispute are pharmaceutical products the Company contends were nonconforming. In its action, the Company seeks damages for losses suffered as a result of the delivery of non-conforming products. The case is in the early stages of discovery. The Company intends to prosecute its action and defend the counterclaim vigorously. The Company may incur substantial costs to defend this action, and the action may result in a substantial judgment against the Company and/or its wholly-owned subsidiary, Allied Med, Inc. This case, Allied Med, Inc. vs. Alliance Wholesale Distribution, (case no. 0310-11570) is filed in Multnomah County, Oregon Circuit Court. The Franchise Tax Board of the State of California has asserted that Amexdrug Corporation (formerly Harlyn Products, Inc.) owes approximately $544,822 in franchise taxes from periods prior to April 2000. However, as stipulated in the bankruptcy court's order dated April 25, 2000, Jack Amin purchased 1,000,000 common shares of Harlyn Products, Inc. free of any and all liens and encumbrances. Accordingly, management contends that the Company has no liability relating to this claim. The Company may incur substantial costs to defend this action, and the action may result in a substantial judgment against the Company and/or its wholly-owned subsidiary, Allied Med, Inc. Item 2. Changes in Securities. None; not applicable. Item 3. Defaults Upon Senior Securities. None; not applicable. -14- 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 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, 2004. -15- 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, 2004 By: /s/ Jack Amin --------------------------------------------- Jack Amin Director, President, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer -16-