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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, 2006
[ ] 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 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.
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 7, 2006, there were
8,473,866 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
June 30, 2006 and December 31, 2005 (Unaudited)....................5
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 2006
and 2005 (Unaudited)...............................................6
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2006 and 2005 (Unaudited)............7
Notes to Condensed Consolidated Financial Statements
(Unaudited)........................................................8
Item 2. Management's Discussion and Analysis or Plan of Operations.........10
Item 3. Controls and Procedures............................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........15
Item 3. Defaults Upon Senior Securities....................................15
Item 4. Submission of Matters to a Vote of Security Holders................15
Item 5. Other Information..................................................15
Item 6. Exhibits and Reports on Form 8-K...................................15
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 June 30, 2006 and
December 31, 2005, the related unaudited condensed consolidated statements of
operations for the three and six month periods ended June 30, 2006 and June 30,
2005, the related unaudited condensed consolidated statements of cash flows for
the six month periods ended June 30, 2006 and June 30, 2005, and the notes to
the unaudited 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/A for the year ended of
December 31, 2005.
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. and Dermagen, Inc., its wholly owned
subsidiaries, 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, 2006, are not
necessarily indicative of the results that can be expected for the year ending
December 31, 2006.
3
AMEXDRUG CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Condensed Consolidated Balance Sheets (Unaudited) - June 30, 2006
and December 31, 2005......................................................5
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Six Months Ended June 30, 2006 and 2005.........................6
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three and Six Months Ended June 30, 2006 and 2005.........................7
Notes to Condensed Consolidated Financial Statements.........................8
4
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2006 2005
- --------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 148,143 $ 177,408
Accounts receivable, net of allowance
for doubtful accounts of $19,500 and $19,500 218,898 95,890
Inventory 79,036 77,931
Prepaid expenses - 3,780
Deferred tax asset 7,768 7,768
- --------------------------------------------------------------------------------
Total Current Assets 453,845 362,777
- --------------------------------------------------------------------------------
Property and Equipment
Office and computer equipment 164,982 164,982
Leasehold improvements 15,700 15,700
- --------------------------------------------------------------------------------
Total Property and Equipment 180,682 180,682
Less: Accumulated depreciation (145,658) (128,415)
- --------------------------------------------------------------------------------
Net Property and Equipment 35,024 52,267
Lease Deposits 12,158 12,158
Customer Base, Net of Accumulated
Amortization of $4,566 and $1,522 13,693 16,737
Goodwill 17,765 17,765
- --------------------------------------------------------------------------------
Total Assets $ 532,485 $ 461,704
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 408,908 $ 339,895
Notes payable to related parties 53,140 53,140
Accrued liabilities 4,178 7,461
Accrued income taxes 7,092 1,263
Current portion of capital lease obligations 6,040 8,190
- --------------------------------------------------------------------------------
Total Current Liabilities 479,358 409,949
- --------------------------------------------------------------------------------
Long-term Liabilities
Deferred income taxes 17,338 22,814
Capital lease obligations,
net of current portion 17,590 19,336
- --------------------------------------------------------------------------------
Total Long-Term Liabilities 34,928 42,150
- --------------------------------------------------------------------------------
Stockholders' Equity
Common stock - $0.001 par value, 50,000,000
shares authorized, 8,473,866 shares issued
and outstanding 8,474 8,474
Additional paid-in capital 83,342 83,342
Accumulated deficit (73,617) (82,211)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 18,199 9,605
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 532,485 $ 461,704
================================================================================
See accompanying notes to condensed consolidated financial statements
5
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
2006 2005 2006 2005
- ----------------------------------------------------------------------------------------
Sales $ 1,360,480 $ 1,127,397 $ 2,435,280 $ 2,145,318
Cost of Goods Sold 1,239,536 1,019,389 2,175,270 1,980,457
- ----------------------------------------------------------------------------------------
Gross Profit 120,944 108,008 260,010 164,861
Selling, general and
administrative expense (118,829) (60,927) (249,134) (107,676)
Gain (loss) on litigation
settlement - (10,000) - 17,234
Interest expense (2,078) (850) (2,729) (1,779)
Interest and other income - 32 - 65
- ----------------------------------------------------------------------------------------
Income Before Taxes 37 36,263 8,147 72,705
Provision for (Benefit from)
Income Taxes (68) 17,455 (447) 24,581
- ----------------------------------------------------------------------------------------
Net Income $ 105 $ 18,808 $ 8,594 $ 48,124
========================================================================================
Basic Income Per Common Share $ - $ - $ - $ 0.01
========================================================================================
Basic Weighted-Average Common
Shares Outstanding 8,473,866 8,473,866 8,473,866 8,301,711
========================================================================================
See accompanying notes to condensed consolidated financial statements
6
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended June 30, 2006 2005
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 8,594 $ 48,124
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 17,243 10,695
Amortization 3,044 -
Recovery of bad debt - (19,994)
Deferred income taxes (5,476) 5,888
Changes in operating assets and liabilities:
Accounts receivable (123,008) 129,212
Inventory (1,105) (43,235)
Accounts payable and accrued liabilities 71,559 (62,146)
Prepaid expenses 3,780 -
- --------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Operating Activities (25,369) 68,544
- --------------------------------------------------------------------------------
Cash Flow from Investing Activities: - -
Cash Flows from Financing Activities:
Proceeds from borrowings from related party - 59,260
Principal payments on capital lease obligations (3,896) (5,805)
- --------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Financing Activities (3,896) 53,455
- --------------------------------------------------------------------------------
Net Change in Cash (29,265) 121,999
Cash at Beginning of Period 177,408 4,693
- --------------------------------------------------------------------------------
Cash at End of Period $ 148,143 $ 126,692
================================================================================
Supplemental Cash Flow Information:
Cash paid for interest $ 2,729 $ 1,799
================================================================================
Supplemental Schedule of Noncash Investing and
Financing Activities:
Conversion of related party note payable
to common stock $ - $ 75,794
================================================================================
See accompanying notes to condensed consolidated financial statements
7
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
Condensed Financial Statements -- The accompanying condensed financial
statements have been prepared by the Company and are unaudited. In the opinion
of management, the accompanying unaudited financial statements contain all
necessary adjustments for fair presentation, consisting of normal recurring
adjustments except as disclosed herein.
The accompanying unaudited interim financial statements have been condensed
pursuant to the rules and regulations of the Securities and Exchange Commission;
therefore, certain information and disclosures generally included in financial
statements have been condensed or omitted. The condensed financial statements
should be read in connection with the Company's annual financial statements
included in its annual report on Form 10-KSB as of December 31, 2005. The
financial position and results of operations for the six months ended June 30,
2006 are not necessarily indicative of the results to be expected for the full
year ending December 31, 2006.
Concentrations -- During the six months ended June 30, 2006, purchases from four
vendors accounted for 77%, 18%, 9%, and 8% of total purchases. As of June 30,
2006, accounts payable to these vendors accounted for 52%, 2%, 4%, and 14% of
the total accounts payable, respectively.
NOTE 2 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2004, the Company purchased inventory
totaling $34,304 from Amrx Corporation, a corporation owned by the president of
the Company. As of June 30, 2006 and December 31, 2005, amounts owed to Amrx
constituted $13,140 of the notes payable to related parties balance.
In October of 2005, the Company borrowed $40,000 from the wife of the president
of the Company to facilitate the purchase of Dermagen, Inc. The $40,000 note
matures in October of 2006, carries an annual interest rate of 8%, and interest
is payable every 6 months. As of June 30, 2006 and December 31, 2005, the
balance of this note was $40,000.
NOTE 3 - INVENTORY
Inventory includes purchased products for resale and raw materials and supplies
necessary to manufacture pharmaceuticals, medical devices, and health and beauty
products. The following table describes the balances in inventory as of June 30,
2006:
June 30, 2006
--------------------------------------------------
Raw materials $ 49,858
Finished goods 29,178
--------------------------------------------------
Total inventory $ 79,036
==================================================
NOTE 4 - SEGMENT INFORMATION
The Company has operations in two segments of its business, namely: distribution
and health and beauty products. Distribution consists of the wholesale
pharmaceutical distribution and resale of brand and generic pharmaceutical
products, over-the-counter drugs and non-drug products. Health and beauty
8
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
products consist of manufacturing and distribution of health and beauty
products.
The following tables describe information regarding the operations and assets of
these reportable business segments:
Health and
For the Six Months Ended Beauty
June 30, 2006 Distribution Products Total
- --------------------------------------------------------------------------------
Sales to external customers $ 2,337,446 $ 97,834 $ 2,435,280
Segment income (loss) before taxes 23,507 (15,360) 8,147
Segment assets 455,913 99,032 554,945
================================================================================
June 30, 2006
---------------------------------------------------
Total assets for reportable segments $ 554,945
Elimination of intersegment assets (22,460)
---------------------------------------------------
Consolidated Total Assets $ 532,485
===================================================
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
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.OB. The President of Amexdrug has had experience working in the
pharmaceutical industry for the past 20 years.
Through its wholly-owned subsidiaries, Allied Med, Inc. and Dermagen,
Inc., Amexdrug is primarily a full-line, wholesale distributor of
pharmaceuticals, over-the-counter (OTC) products, health and beauty care
products, and nutritional supplements. Dermagen, Inc. also manufactures products
which it sells. Amexdrug Corporation distributes its products through Allied
Med, Inc. and Dermagen, Inc. primarily to independent pharmacies in the western
and southeastern regions of the United States, and secondarily to small and
medium-sized pharmacy chains, alternative care facilities and other wholesalers
and retailers. Over the next several months, Amexdrug Corporation anticipates
expanding its market area to include other regions in the continental United
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.
Allied Med, Inc.
----------------
On December 31, 2001, Amexdrug acquired all of the issued and
outstanding common shares of Allied Med, Inc., an Oregon corporation, ("Allied
Med") in a share exchange. Amexdrug acquired all 50,000 issued and outstanding
shares of Allied Med 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
10
to Allied Med. 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 Med's past
operating history and potential for future growth.
Allied Med 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) drug and non-drug
products and health and beauty products to independent and chain pharmacies,
alternative care facilities and other wholesalers.
Amexdrug has assumed the operations of Allied Med as its primary
operations, and Amexdrug intends to build on the pharmaceutical wholesale
operations of Allied Med.
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.
Dermagen, Inc.
--------------
Amexdrug completed its purchase of Dermagen, Inc. on October 7, 2005
with Amexdrug paying $70,000 cash to the Dermagen, Inc. shareholders. Amexdrug
borrowed approximately $40,000 from Nora Amin, the wife of Amexdrug's CEO, which
was used to complete the acquisition. Dermagen, Inc. is now an operating
subsidiary of Amexdrug. The acquisition of Dermagen, Inc. is not considered to
be an acquisition of a significant amount of assets which would require audited
financial statements of Dermagen, Inc.
Dermagen, Inc. is a growing manufacturing company specializing in the
manufacturing and distribution of certain pharmaceuticals, medical devices,
health and beauty products. Dermagen, Inc. has a U.S.-FDA registered and state
FDA approved manufacturing facility licensed to develop high margin skin and
novel health and beauty products for niche markets. Our competitive advantage is
in our superior product research and development for large leading domestic and
international companies.
Royal Health Care Company
-------------------------
In October 2003, Allied Med, Inc. acquired 100% of the assets of Royal
Health Care Company. Royal Health Care Company is a health and beauty company
which has sold specially manufactured facial and body creams, arthritic pain
relief medications and an exclusive patented hair care product to pharmacies,
beauty salons, beauty supply stores and other fine shops. Royal Health Care
Company uses the highest quality ingredients for the finest quality products.
Each product has been formulated with the essential ingredients and plant
extracts to achieve optimum potential and quality. Royal Health Care Company
products are manufactured by a third party in an FDA approved manufacturing
facility.
The Royal Health Care Company assets acquired include the "Royal Health
Care Company" name, logo, and related trademarks, all formulas to products
11
manufactured for sale under the Royal Health Care Company name, and the Royal
Health Care Company list of customers. These intellectual property rights were
acquired without cost from a company in which Jack Amin's wife is a principal
shareholder. Mr. Amin is the CEO and Chairman of Amexdrug Corporation and Allied
Med, Inc. Management believes this acquisition will provide the Company with an
opportunity to increase the number of products sold by the Company, and expand
the Company's customer base.
New subsidiaries formed
-----------------------
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.
On November 8, 2004, Amexdrug formed a new subsidiary, Biorx
Pharmaceuticals, Inc. as a Nevada corporation. Biorx Pharmaceuticals, Inc. was
formed for the purpose of repacking and selling generic and branded
pharmaceuticals.
Results of Operations
---------------------
For the three months ended June 30, 2006, Amexdrug reported sales of
$1,360,480, comprised entirely of income from Allied Med, Inc.'s and Dermagen,
Inc.'s pharmaceutical wholesale business of selling brand name and generic
pharmaceutical products, and over-the-counter (OTC) and health and beauty
products. This is $233,083 more than the $1,127,397 of sales reported for the
three months ended June 30, 2005. For the six months ended June 30, 2006, sales
reported by Amexdrug were $2,435,280, which is $289,962 more than the $2,145,318
of sales reported for the six months ended June 30, 2005. During the three and
six month periods ended June 30, 2006, Amexdrug experienced an increase in total
sales due, in part, to the acquisition of Dermagen, Inc. in October 2005 and the
sale of Dermagen, Inc. products in the three and six month periods ended June
30, 2006. Cost of goods sold for the three months ended June 30, 2006 was
$1,239,536, an increase of $220,147 over the $1,019,389 cost of goods sold for
the three months ended June 30, 2005. Cost of goods sold for the six months
ended June 30, 2006 was $2,175,270, an increase of $194,813 over the $1,980,457
cost of goods sold for the six months ended June 30, 2005. During the three
months ended June 30, 2006 gross profit increased by $12,936 to $120,944 or 8.9%
of sales for the three months ended June 30, 2006, from the $108,008 or 9.6% of
sales recorded for the three months ended June 30, 2005. For the six months
ended June 30, 2006 gross profit increased by $95,149 to $260,010 or 10.7% of
sales from the $164,861 or 7.7% of sales recorded for the six months ended June
30, 2005.
Selling, general and administrative expense was $118,829 for the three
months ended June 30, 2006, an increase of $57,902 from the $60,927 recorded for
the three months ended June 30, 2005. For the six months ended June 30, 2006,
Amexdrug reported selling, general and administrative expense of $249,134, an
increase of $141,458 from the $107,676 reported for the six months ended June
30, 2005. This increase in selling, general and administrative expense is
12
largely attributable to increased employee expenses and lease obligations
assumed by the Company due to its acquisition of Dermagen, Inc. and also to
increased expenses relating to four trade shows attended by the Company.
During the three months ended June 30, 2005, Amexdrug settled one
pending lawsuit against it by paying $10,000. No similar expense was incurred
during the three months ended June 30, 2006. During the six months ended June
30, 2005, Amexdrug recorded a nonrecurring gain from litigation settlement of
$17,234. This included the settlement expense of $10,000 incured during the
second quarter of 2005 and a gain of $27,234 achieved in a separate lawsuit in
the first quarter of 2005. In that lawsuit, the parties reached a settlement
under which Allied Med, Inc. paid a vendor $5,000 to settle a claim of $32,234.
A gain of $27,234 was recognized upon payment. No similar gain was experienced
during the six months ended June 30, 2006.
During the three months ended June 30, 2006, Amexdrug experienced net
income of $105, which is $18,703 less than the $18,808 net income earned in the
three months ended June 30, 2005. During the six months ended June 30, 2006,
Amexdrug experienced net income of $8,594, which is $39,530 less than the
$48,124 net income earned during the six months ended June 30, 2005. Amexdrug
attributes this decrease in net income primarily to increases in selling,
general and administrative expenses attributable to the reasons described above.
Liquidity and Capital Resources - June 30, 2006
-----------------------------------------------
As of June 30, 2006, Amexdrug reported total current assets of
$453,845, comprised of cash and cash equivalents of $148,143, accounts
receivable of $218,898, inventory of $79,036 and deferred tax asset of $7,768.
Total assets as of June 30, 2006 were $532,485, which included total current
assets, plus net property and equipment of $35,024, lease deposits of $12,158,
customer base of $13,693 and goodwill of $17,765.
Amexdrug's liabilities as of June 30, 2006 consisted of accounts
payable of $408,908, notes payable to related parties of $53,140, accrued
liabilities of $4,178, accrued income taxes of $7,092, current portion of
capital lease obligations of $6,040, and total long-term liabilities of $34,928.
During the six months ended June 30, 2006, Amexdrug's operating
activities used $25,369 cash compared to $68,544 cash provided by Amexdrug's
operating activities in the six months ended June 30, 2005. The primary
adjustments to reconcile net income to net cash provided by operating activities
during the first six months of 2006 were as follows: an increase in accounts
receivable of $123,008, an increase in accounts payable and accrued liabilities
of $71,559, depreciation expense of $17,243 and a decrease of $5,476 in deferred
income taxes. Cash decreased during the six months ended June 30, 2006 by
$29,265 compared to an increase during the six months ended June 30, 2005 of
$121,999. Cash from operating activities in the six months ended June 30, 2006
decreased primarily due to an increase in accounts receivable. Operations have
primarily been funded through cash generated from operations and also from loans
and/or capital infusions from related parties. Management does not anticipate
that Amexdrug will need to seek additional financing during the next twelve
months.
13
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.
We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed,
summarized, and reported within the required time periods and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Principal Financial Officer, as appropriate, to
allow for timely decisions regarding required disclosure. The effectiveness of
any system of disclosure controls and procedures is subject to certain
limitations, including the exercise of judgment in designing, implementing, and
evaluating the controls and procedures, the assumptions used in identifying the
likelihood of future events, and the inability to eliminate improper conduct
completely. A controls system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the controls system are met,
and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected. As a
result, there can be no assurance that our disclosure controls and procedures
will detect all errors or fraud.
As required by Rule 13a-15 under the Exchange Act, we have completed an
evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and Principal Financial Officer, of the
effectiveness and the design and operation of our disclosure controls and
procedures as of June 30, 2006. Based upon this evaluation and as a result of
the material weakness discussed below, our management, including the Chief
Executive Officer and Principal Financial Officer, has concluded that our
disclosure controls and procedures were not effective as of June 30, 2006.
Management nevertheless has concluded that the consolidated financial statements
included in this Form 10-QSB present fairly, in all material respects, the
results of our operations and our financial position for the periods presented
in conformity with generally accepted accounting principles.
A material weakness is a control deficiency, or combination of control
deficiencies, that result in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected in a timely basis by management or employees in the normal course of
performing their assigned functions. As of June 30, 2006, we identified the
following material weakness in our internal controls:
* We have a material weakness in the adequacy of our closing process
and our preparation of adjusting entries to effectively prepare
accurate financial statements with the necessary level of review and
supervision.
There were no changes to any reported financial results that have been
released by us in this or any other filings as a result of the above-described
material weakness; however, the following actions have been taken since June 30,
2006 in response to the inadequacies noted above:
14
* Initiation of an evaluation and remediation process with respect to
internal controls over financial reporting and related processes
designed to identify internal controls that mitigate financial
reporting risk and identify control gaps that may require further
remediation.
* Evaluation of the staffing, organizational structure, systems,
policies and procedures, and other reporting processes, to improve
the accuracy of closing and adjusting these accounts and to enhance
the level of review and supervision.
Other than as described above, since the evaluation date, there has
been no change in our internal controls over financial reporting (as defined in
Rules 13a-15 and 15d-15 under the Exchange Act) that has materially affected, or
is reasonably likely to materially affect, our internal controls 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 not presently a party to any material pending legal
proceedings. 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed by Amexdrug during the
quarter ended June 30, 2006.
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 8, 2006 By: /s/ Jack Amin
-------------------------------------
Jack Amin
Director, President, Chief Executive
Officer, Chief Financial Officer and
Chief Accounting Officer
16
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