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 September 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 90-0017017
------------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or Organization)
8909 West Olympic Boulevard, Suite 208
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 November 15, 2004, 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)......................................3
Condensed Consolidated Balance Sheets --
As of September 30, 2004 and December 31, 2003 (Unaudited)...........4
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2004
and 2003 (Unaudited).................................................5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2004 and 2003 (Unaudited)............6
Notes to Condensed Consolidated Financial Statements (Unaudited)......7
Item 2. Management's Discussion and Analysis or Plan of Operations............9
Item 3. Controls and Procedures..............................................12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................13
Item 2. Changes in Securities................................................14
Item 3. Defaults Upon Senior Securities......................................14
Item 4. Submission of Matters to a Vote of Security Holders..................14
Item 5. Other Information....................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................14
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited condensed consolidated balance sheets of Amexdrug
Corporation, a Nevada corporation, and subsidiary as of September 30, 2004 and
December 31, 2003, the related unaudited condensed consolidated statements of
operations for the three and nine month periods ended September 30, 2004 and
September 30, 2003, the related unaudited condensed consolidated statements of
cash flows for the nine month periods ended September 30, 2004 and September 30,
2003 and the notes to the unaudited 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 Amexdrug's
annual report on Form 10-KSB for the year ended December 31, 2003.
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 September 30, 2004, are not
necessarily indicative of the results that can be expected for the year ending
December 31, 2004.
-3-
AMEXDRUG CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 19,283 $ 1,185
Accounts receivable, net of allowance for doubtful
accounts of $95,000 and $95,000, respectively 280,228 405,224
Inventory 76,912 137,948
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Total Current Assets 376,423 544,357
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Property and Equipment
Office and computer equipment 133,641 133,641
Leasehold improvements 15,700 15,700
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Total Property and Equipment 149,341 149,341
Less: Accumulated depreciation (100,092) (82,863)
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Net Property and Equipment 49,249 66,478
Investment in real estate -- --
Deposits 1,100 1,100
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Total Assets $ 426,772 $ 611,935
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Checks written in excess of cash in bank $ -- $ 41,024
Accounts payable 361,098 586,116
Accrued liabilities 2,485 14,972
Accrued income taxes 36,183 --
Current portion of capital lease obligations 24,175 24,545
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Total Current Liabilities 423,941 666,657
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Long-Term Liabilities
Deferred income taxes 7,142 1,004
Capital lease obligations, net of current portion 17,104 35,076
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Total Long-Term Liabilities 24,246 36,080
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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 (37,437) (106,824)
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Total Stockholders' Deficit (21,415) (90,802)
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Total Liabilities and Stockholders' Deficit $ 426,772 $ 611,935
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
-4-
AMEXDRUG CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
2004 2003 2004 2003
- --------------------------------------------------------------------------------------------
Sales $ 1,178,454 $ 2,366,625 $ 5,414,543 $ 9,073,745
Cost of Goods Sold 1,182,951 2,265,706 5,121,557 8,663,940
- --------------------------------------------------------------------------------------------
Gross Profit (Loss) (4,497) 100,919 292,986 409,805
Operating Expenses
Selling, general and
administrative expense (42,831) (63,610) (206,661) (292,960)
Interest expense (770) (2,560) (2,952) (5,152)
- --------------------------------------------------------------------------------------------
Income (Loss) From Operations (48,098) 34,749 83,373 111,693
Gain on Sale of Property 165,000 -- 165,000 --
Gain (Loss) on Litigation Settlement 5,426 -- (134,574) --
- --------------------------------------------------------------------------------------------
Income Before Income Taxes 122,328 34,749 113,799 111,693
Provision for Income Taxes (45,416) (10,515) (44,412) (25,473)
- --------------------------------------------------------------------------------------------
Net Income $ 76,912 $ 24,234 $ 69,387 $ 86,220
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Basic Income Per Common Share $ 0.01 $ -- $ 0.01 $ 0.01
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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
-5-
AMEXDRUG CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
-----------------------
2004 2003
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income (loss) $ 69,387 $ 86,220
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 17,229 13,426
Bad debt expense -- (87,083)
Gain on sale of property (165,000) --
Loss on litigation settlement 134,574 --
Changes in operating assets and liabilities:
Accounts receivable 124,996 466,113
Inventory 61,036 321,129
Accounts payable and accrued liabilities (207,079) (951,245)
Accrued income taxes 36,183 24,673
Deferred income taxes 6,138 --
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 77,464 (126,767)
- --------------------------------------------------------------------------------
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 (18,342) (13,347)
- --------------------------------------------------------------------------------
Net Cash Used in Financing Activities (59,366) (13,347)
- --------------------------------------------------------------------------------
Net Change in Cash 18,098 (140,114)
Cash at Beginning of Period 1,185 338,529
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Cash at End of Period $ 19,283 $ 198,415
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Supplemental Cash Flow Information:
Cash paid for interest $ 2,952 $ 5,152
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See accompanying notes to condensed consolidated financial statements
-6-
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 nine months ended September
30, 2004 are not necessarily indicative of the results to be expected for the
full year ending December 31, 2004.
Business Condition -- During the nine months ended September 30, 2004, the
Company experienced a decrease in revenue of approximately 40%, or $3,659,202.
During the nine months ended September 30, 2004 and 2003, the cash flows from
the Company's operations were $77,464 and $(126,767), respectively. At September
30, 2004, the Company had a working capital deficiency of $155,587 and a capital
deficiency of $21,415. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
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.
Accounts Receivable -- 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.
Concentrations -- During the nine months ended September 30, 2004, purchases
from three vendors accounted for 38%, 23%, and 13% of total purchases. As of
September 30, 2004, accounts payable to these vendors accounted for 12%, 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 was recorded at its
historical cost of $0. The real estate was not used in the Company's operations
and was held for sale. As further described in Note 2, the Company transferred
these eight parcels of real estate to a vendor in settlement of a claim against
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.
-7-
AMEXDRUG CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS
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.
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 were 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 alleged causes of action for breach of
contract, for specific performance, for services rendered and for unjust
enrichment. Plaintiffs sought compensation for damages, legal fees, costs and
interest. Management determined, with the advice of its legal counsel, that a
loss from the claim was at least $140,000 and the Company accrued that amount in
the financial statements for the quarter ended June 30, 2004. On October 26,
2004, the trial judge entered a decision in favor of the Company. Accordingly,
the Company reversed the accrual during the quarter ended September 30, 2004.
This resulted in a gain from the reversal of the accrual during the three months
ended September 30, 2004. Subsequent to the end of the quarter, the plaintiffs
filed a notice of intent of move for a new trial. No additional amounts have
been accrued in the accompanying financial statements.
During 2003, the Company initiated action against one of its vendors. At dispute
are pharmaceutical products the Company contends were non-conforming. In its
action, the Company sought for damages for losses suffered as a result of the
delivery of the non-conforming products. The vendor filed a counterclaim for
$365,603, plus costs and attorney fees. Effective August 24, 2004, the Company
entered into a settlement agreement with the vendor. Under the terms of the
agreement, the Company transferred its eight real estate parcels to its vendor
in return for the release of all claims. The properties were valued at $165,000,
their estimated fair value and the Company recognized a gain from the sale of
the property of $165,000. Since $30,426 of accounts payable to the vendor had
been previously accrued, the resulting loss from the settlement during the nine
months was $134,574.
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. A stipulation in
the bankruptcy court's order dated April 25, 2000, stated that Jack Amin
purchased 1,000,000 common shares of Harlyn Products, Inc. free of any and all
liens or encumbrances. Management asserted that the Company had no liability
relating to the claim. During the quarter ended September 30, 2004, the Company
reached an agreement with the State of California to pay $1,606 to settle all
amounts under the claim. This amount has been accrued in the accompanying
financial statements.
-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 208,
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 AXRX 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 potential for
future 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.
Amexdrug has assumed the operations of Allied as its primary
operations, and Amexdrug intends to build on the pharmaceutical wholesale
operations of Allied.
On October 28, 2004, Amexdrug formed a new subsidiary, Royal Health
Care, Inc. as a Nevada corporation. Royal Health Care, Inc. was formed to
manufacture and sell health and beauty products.
Amexdrug is also in the process of forming a new subsidiary to be known
as Biorx Pharmaceuticals, Inc., a Nevada corporation, for the purpose of
repackaging and selling generic and branded pharmaceuticals. It is anticipated
that Biorx Pharmaceuticals, Inc. will be formed in November 2004.
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 September 30, 2004, Amexdrug reported sales
of $1,178,454, 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 $1,188,171 less than the $2,366,625 of sales reported for the
three months ended September 30, 2003. For the nine months ended September 30,
2004, sales reported by Amexdrug were $5,414,543, which is $3,659,202 less than
the $9,073,745 of sales reported for the nine months ended September 30, 2003.
During the three and nine month periods ended September 30, 2004, Amexdrug
experienced a decline in total sales due to increased competition and Amexdrug's
search for better discount products to sell. As a result, total sales declined
during the three and nine month periods ended September 30, 2004 as compared to
total sales during the three and nine month periods ended September 30, 2003.
Cost of goods sold for the three months ended September 30, 2004 was $1,182,951,
a decrease of $1,082,755 over the $2,265,706 cost of goods sold for the three
months ended September 30, 2003. Cost of goods sold for the nine months ended
September 30, 2004 was $5,121,557, a decrease of $3,542,383 over the $8,663,940
cost of goods sold for the nine months ended September 30, 2003. During the
three months ended September 30, 2004 gross profit decreased by $105,416 to
($4,497), or (0.4%) of sales, from the $100,919, or 4.3% of sales, recorded for
the three months ended September 30, 2003. For the nine months ended September
30, 2004 gross profit decreased by $116,819 to $292,986, or 5.4% of sales, from
the $409,805, or 4.5% of sales, recorded for the nine months ended September 30,
2003. Amexdrug attributes its negative gross profit for the three months ended
September 30, 2004 primarily to the sale of some inventory at prices slightly
below Amexdrug's cost.
-10-
Selling, general and administrative expense was $42,831 for the three
months ended September 30, 2004, a decrease of $20,779 from the $63,610 recorded
for the three months ended September 30, 2003. For the nine months ended
September 30, 2004, Amexdrug reported selling, general and administrative
expense as $206,661, a decrease of $86,299 from the $292,960 reported for the
nine months ended September 30, 2003. This decrease in selling, general and
administrative expense is attributable to a decrease in expenses related to the
decline in sales and resulting decrease in the Company's operations.
During the three and nine months ended September 30, 2004, Amexdrug
recorded a nonrecurring gain on transfer of property and equipment of $165,000
in connection with Allied Med, Inc.'s transfer of ownership of eight parcels of
undeveloped real estate to settle a lawsuit.
During the three months ended September 30, 2004, Amexdrug recorded a
nonrecurring gain from litigation settlement of $5,426. In one lawsuit, Amexdrug
recorded a settlement expense of $140,000 in the three month period ended June
30, 2004 when the parties reached a tentative settlement agreement.
Subsequently, the settlement was terminated, the case was tried, and the court
entered judgment in favor of Amexdrug, concluding that Amexdrug had no liability
to the plaintiff. As a result, the previously accrued settlement expense of
$140,000 was reversed in the three month period ended September 30, 2004. In a
separate lawsuit, the parties reached a settlement under which Allied Med, Inc.
transferred eight parcels of real estate with an estimated value of $165,000.
Since $30,426 payable to the other party was already accrued in accounts
payable, the resulting loss from the settlement during the nine months was
$134,574. For the three months ended September 30, 2004, the gain of $140,000
from one lawsuit was offset by the $134,574 loss from the other lawsuit,
resulting in a combined net gain on litigation settlement of $5,426 for the
period.
During the three months ended September 30, 2004, Amexdrug experienced
net income of $76,912, an increase of $52,678 from the $24,234 recorded for the
three months ended September 30, 2003. During the nine months ended September
30, 2004, Amexdrug experienced net income of $69,387, a decrease of $16,833 from
the $86,220 reported for the nine months ended September 30, 2003. Amexdrug's
increase in net profits during the three month period ended September 30, 2004
is attributable largely to the nonrecurring $165,000 gain on transfer of
property and equipment and the nonrecurring $5,426 gain on litigation settlement
which occurred in connection with two lawsuits.
Liquidity and Capital Resources - September 30, 2004
----------------------------------------------------
As of September 30, 2004, Amexdrug reported total current assets of
$376,423, comprised of cash of $19,283, accounts receivable, net of $280,228 and
inventory of $76,912. Total assets as of September 30, 2004 were $426,772, which
included total current assets, plus net property and equipment of $49,249 and
deposits of $1,100.
-11-
Amexdrug's liabilities as of September 30, 2004 consist of accounts
payable of $361,098 accrued liabilities of $2,485, accrued income taxes of
$36,183, current portion of capital lease obligations of $24,175, and total
long-term liabilities of $24,246.
During the nine months ended September 30, 2004, Amexdrug's operating
activities provided net cash of $77,464 compared to $126,767 net cash used in
operating activities in the nine months ended September 30, 2003. The primary
adjustments to reconcile net income to net cash provided by operating activities
during 2004 were as follows: a decrease in accounts receivable of $124,996, a
decrease in inventory of $61,036, a decrease in accounts payable and accrued
liabilities of $207,079, an increase in accrued income taxes of $36,183, an
increase in deferred income taxes of $6,138, a depreciation expense of $17,229
and a gain on transfer of property of $165,000. Cash increased during the nine
months ended September 30, 2004 by $18,098 compared to a decrease during 2003 of
$140,114. Amexdrug had $19,283 of cash at September 30, 2004. 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 for approximately six months. Management anticipates that
Amexdrug will need to obtain some additional financing during the next twelve
months.
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, 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.
-12-
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
wholly owned subsidiary, Allied Med, Inc., and the Company's principal
shareholder, Jack Amin. The plaintiffs alleged 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 were 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 alleged causes of action for breach of
contract, for specific performance, for services rendered and for unjust
enrichment. Plaintiffs sought compensation for damages, legal fees, costs and
interest. Earlier this year, the parties reached a tentative agreement to settle
the lawsuit, and management accrued $140,000 as a settlement obligation in the
three month period ended March 31, 2004. Subsequently, the tentative settlement
was terminated, and the cased was tried. In October 2004, the court entered its
decision and judgment in favor of Amexdrug on the Complaint finding that the
plaintiff should receive nothing. The court also found that Amexdrug should
receive nothing on its Cross-Complaint. Each party had to bear its own
litigation costs. Subsequent to the end of the quarter, the plaintiffs filed a
Notice of Intent to Move for a New Trial
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 were pharmaceutical products the Company contended were
non-conforming. In this action, the Company sought damages for losses suffered
as a result of the delivery of non-conforming products. This case, Allied Med,
Inc. vs. Alliance Wholesale Distribution, (case no. 0310-11570) was filed in
Multnomah County, Oregon Circuit Court. The parties entered into a Mutual
Release and Settlement Agreement effective August 24, 2004 in which Allied Med,
Inc., a subsidiary of the Company, was required to transfer ownership if its
eight (8) parcels of real property to Phil Giannino free from any encumbrances
in order to settle the lawsuit. The real property has been transferred, and the
case has been concluded.
-13-
The Franchise Tax Board of the State of California asserted that
Amexdrug Corporation (formerly Harlyn Products, Inc.) owed approximately
$544,822 in franchise taxes from periods prior to April 2000. The Company
contended that it had no liability relating to this claim. On or about October
18, 2004, the California Franchise Tax Board concluded this matter by issuing a
Notice of Balance Due for $1,605.52 to be paid on or before November 2, 2004.
This amount has been paid in full by Amexdrug.
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
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
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(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed by Amexdrug during the
quarter ended September 30, 2004.
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: November 19, 2004 By: /s/ Jack Amin
-----------------------
Jack Amin
Director, President, Chief Executive
Officer, Chief Financial Officer and
Chief Accounting Officer
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