================================================================================ 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, 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 November 10, 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 Index to Financial Statements.......................................4 Condensed Consolidated Balance Sheets -- As of September 30, 2006 and December 31, 2005 (Unaudited)........................................................5 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited)..........................................6 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005 (Unaudited)...............................................7 Notes to Condensed Consolidated Financial Statements (Unaudited)........................................................8 Item 2. Management's Discussion and Analysis or Plan of Operation.........................................................10 Item 3. Controls and Procedures............................................14 PART II - OTHER INFORMATION Item 1. Legal Proceedings..................................................16 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........................................................16 Item 3. Defaults Upon Senior Securities....................................16 Item 4. Submission of Matters to a Vote of Security Holders................16 Item 5. Other Information..................................................16 Item 6. Exhibits and Reports on Form 8-K...................................16 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The unaudited condensed consolidated balance sheets of Amexdrug Corporation, a Nevada corporation, and subsidiaries as of September 30, 2006 and December 31, 2005, the related unaudited condensed consolidated statements of operations for the three and nine month periods ended September 30, 2006 and September 30, 2005, the related unaudited condensed consolidated statements of cash flows for the nine month periods ended September 30, 2006 and September 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's annual report on Form 10-KSB for the year ended 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 September 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) - September 30, 2006 and December 31, 2005....................................5 Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2006 and 2005.................................................6 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2006 and 2005.................................................7 Notes to Condensed Consolidated Financial Statements (Unaudited).................................................................8 4 AMEXDRUG CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 2006 2005 - -------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 102,591 $ 177,408 Accounts receivable, net of allowance for doubtful accounts of $19,500 and $19,500 179,256 95,890 Inventory 60,921 77,931 Prepaid expenses - 3,780 Deferred tax asset 7,768 7,768 - -------------------------------------------------------------------------------- Total Current Assets 350,536 362,777 - -------------------------------------------------------------------------------- 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 (144,634) (128,415) - -------------------------------------------------------------------------------- Net Property and Equipment 36,048 52,267 Lease Deposits and Other Assets 13,233 12,158 Customer Base, Net of Accumulated Amortization of $6,088 and $1,522 12,171 16,737 Trademarks, Net of Accumulated Amortization of $18 982 - Goodwill 17,765 17,765 - -------------------------------------------------------------------------------- Total Assets $ 430,735 $ 461,704 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 294,564 $ 339,895 Notes payable to related parties 73,140 53,140 Accrued liabilities 5,115 7,461 Accrued income taxes 5,403 1,263 Current portion of capital lease obligations 4,965 8,190 - -------------------------------------------------------------------------------- Total Current Liabilities 383,187 409,949 - -------------------------------------------------------------------------------- Long-Term Liabilities Deferred income taxes 17,915 22,814 Capital lease obligations, net of current portion 16,717 19,336 - -------------------------------------------------------------------------------- Total Long-Term Liabilities 34,632 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 (78,900) (82,211) - -------------------------------------------------------------------------------- Total Stockholders' Equity 12,916 9,605 - -------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 430,735 $ 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 Nine Months Ended September 30, Ended September 30, ------------------------- ------------------------- 2006 2005 2006 2005 - -------------------------------------------------------------------------------- Sales $ 972,121 $ 1,552,772 $ 3,407,401 $ 3,698,090 Cost of Goods Sold 899,292 1,443,225 3,074,562 3,423,682 - -------------------------------------------------------------------------------- Gross Profit 72,829 109,547 332,839 274,408 Selling, general and administrative expense (77,755) (72,723) (326,889) (180,400) Gain on litigation settlement - - - 17,234 Interest expense (1,469) (521) (4,198) (2,300) Interest and other income - 583 - 648 - -------------------------------------------------------------------------------- Income (Loss) Before Taxes (6,395) 36,886 1,752 109,590 Benefit from (Provision for) Income Taxes 1,112 (15,985) 1,559 (40,566) - -------------------------------------------------------------------------------- Net Income (Loss) $ (5,283) $ 20,901 $ 3,311 $ 69,024 ================================================================================ Basic Income (Loss) Per Common Share $ - $ - $ - $ 0.01 ================================================================================ Basic Weighted-Average Common Shares Outstanding 8,473,866 8,473,866 8,473,866 8,359,726 ================================================================================ See accompanying notes to condensed consolidated financial statements 6 AMEXDRUG CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended September 30, 2006 2005 - -------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $ 3,311 $ 69,024 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 16,219 15,459 Amortization 4,584 - Recovery of bad debt - (19,994) Gain on settlement - (17,234) Deferred income taxes (4,899) 5,583 Changes in operating assets and liabilities: Accounts receivable (83,366) 114,308 Inventory 17,010 8,763 Accounts payable and accrued liabilities (43,537) 53,953 Prepaid expenses 3,780 (3,686) - -------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities (86,898) 226,176 - -------------------------------------------------------------------------------- Cash Flow from Investing Activities: Acquisition of trademark (1,000) - Purchase of investments - (1,600) Payment of deposits (1,075) (14,308) - -------------------------------------------------------------------------------- Net Cash Used in Investing Activities (2,075) (15,908) - -------------------------------------------------------------------------------- Cash Flows from Financing Activities: Payment for lawsuit settlement - (15,000) Proceeds from borrowings from related party 20,000 59,260 Principal payments on capital lease obligations (5,844) (8,165) - -------------------------------------------------------------------------------- Net Cash Provided by Financing Activities 14,156 36,095 - -------------------------------------------------------------------------------- Net Change in Cash (74,817) 246,363 Cash at Beginning of Period 177,408 4,693 - -------------------------------------------------------------------------------- Cash at End of Period $ 102,591 $ 251,056 ================================================================================ Supplemental Cash Flow Information: Cash paid for interest $ 3,207 $ 2,300 ================================================================================ 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 nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the full year ending December 31, 2006. Concentrations -- During the nine months ended September 30, 2006, purchases from three vendors accounted for 57%, 15%, and 12% of total purchases. As of September 30, 2006, accounts payable to these vendors accounted for 33%, 38%, and 0% 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 September 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 carries an annual interest rate of 8%, and interest is payable every 6 months. The note had an initial maturity date in October of 2006, but the term was extended until April of 2007. As of September 30, 2006 and December 31, 2005, the balance of this note was $40,000. In August of 2006, the Company borrowed $20,000 from the wife of the president of the Company for operating expenses. The $20,000 note matures in February of 2007 and carries an annual interest rate of 9%. Principal and interest are payable on the maturity date. As of September 30, 2006 the balance of this note was $20,000. As of September 30, 2006 and December 31, 2005, total accrued interest on the notes payable to related parties was $991 and $0, respectively. 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 September 30, 2006: September 30, 2006 -------------------------------------------------------------- Raw materials $ 27,483 Finished goods 33,438 -------------------------------------------------------------- Total inventory $ 60,921 ============================================================== 8 AMEXDRUG CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - SEGMENT INFORMATION Beginning in October of 2005, 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 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 Elimination Beauty of Intersegment Distribution Products Assets Total - ------------------------------------------------------------------------------------------- For the Three Months Ended September 30, 2006 Sales to external customers $ 941,779 $ 30,342 $ - $ 972,121 Segment income (loss) before taxes 12,875 (19,270) - (6,395) Segment assets 375,572 98,963 (43,800) 430,735 For the Three Months Ended September 30, 2005 Sales to external customers $ 1,552,772 $ - $ - $ 1,552,772 Segment income (loss) before taxes 36,886 - - 36,886 Segment assets 567,524 - - 567,524 For the Nine Months Ended September 30, 2006 Sales to external customers $ 3,279,225 $ 128,176 $ - $ 3,407,401 Segment income (loss) before taxes 36,382 (34,630) - 1,752 Segment assets 375,572 98,963 (43,800) 430,735 For the Nine Months Ended September 30, 2005 Sales to external customers $ 3,698,090 $ - $ - $ 3,698,090 Segment income (loss) before taxes 109,590 - - 109,590 Segment assets 567,524 - - 567,524 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 10 of a $100,000 promissory note, and all accrued interest thereon owed by Mr. Amin 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. 11 The Royal Health Care Company assets acquired include the "Royal Health Care Company" name, logo, and related trademarks, all formulas to products 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 September 30, 2006, Amexdrug reported sales of $972,121, comprised entirely of income from the 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 $580,651 less than the $1,552,772 of sales reported for the three months ended September 30, 2005. For the nine months ended September 30, 2006, sales reported by Amexdrug were $3,407,401, which is $290,689 less than the $3,698,090 of sales reported for the nine months ended September 30, 2005. During the three and nine month periods ended September 30, 2006, Amexdrug experienced a decline in total sales due to increased competition and Amexdrug's search for better discount products to sell. Cost of goods sold for the three months ended September 30, 2006 was $899,292, a decrease of $543,933 from the $1,443,225 cost of goods sold for the three months ended September 30, 2005. Cost of goods sold for the nine months ended September 30, 2006 was $3,074,562, a decrease of $349,120 over the $3,423,682 cost of goods sold for the nine months ended September 30, 2005. During the three months ended September 30, 2006 gross profit decreased to $72,829, or 7.5% of sales, from $109,547, or (7.1%) of sales, recorded for the three months ended September 30, 2005. For the nine months ended September 30, 2006 gross profit increased by $58,431 to $332,839, or 9.8% of sales, from the $274,408, or 7.4% of sales, recorded for the nine months ended September 30, 2005. Amexdrug attributes its decline in gross profit for the three months ended September 30, 2006 primarily to the decrease in sales during the same period. Selling, general and administrative expense was $77,755 for the three months ended September 30, 2006, an increase of $5,032 from the $72,723 recorded for the three months ended September 30, 2005. For the nine months ended September 30, 2006, Amexdrug reported selling, general and administrative expense as $326,889, an increase of $146,489 from the $180,400 reported for the 12 nine months ended September 30, 2005. The changes in selling, general and administrative expense are largely attributable to increased employee expenses and lease obligations assumed by Amexdrug due to its acquisition of Dermagen, Inc., and to research and development expenses incurred by Dermagen, Inc. During the nine months ended September 30, 2005, Amexdrug recorded a nonrecurring gain from litigation settlement of $17,234. This included a settlement expense of $10,000 incurred 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 nine months ended September 30, 2006. During the three months ended September 30, 2006, Amexdrug experienced net loss of $5,283, compared to net income of $20,901 recorded for the three months ended September 30, 2005. During the nine months ended September 30, 2006, Amexdrug experienced net income of $3,311, a decrease of $65,713 from the $69,024 reported for the nine months ended September 30, 2005. Amexdrug's attributes its net loss during the three month period ended September 30, 2006 as compared to the net income during the three month period ended September 30, 2005 largely to the increases in selling, general and administrative expense, and research and development expense, and a decrease in sales. Liquidity and Capital Resources - September 30, 2006 ---------------------------------------------------- As of September 30, 2006, Amexdrug reported total current assets of $350,536, comprised mostly of cash of $102,591, accounts receivable of $179,256 and inventory of $60,921. Total assets as of September 30, 2006 were $430,735, which included total current assets, plus net property and equipment of $36,048, lease deposits and other assets of $13,233, customer base of $12,171, trademarks of $982 and goodwill of $17,765. Amexdrug's liabilities as of September 30, 2006 consist of accounts payable of $295,564, notes payable to related parties of $73,140, accrued liabilities of $5,115, accrued income taxes of $5,403, current portion of capital lease obligations of $4,965, and total long-term liabilities of $34,632. During the nine months ended September 30, 2006, Amexdrug's operating activities used net cash of $86,898 compared to $226,176 of net cash generated from operating activities in the nine months ended September 30, 2005. The primary adjustments to reconcile net income to net cash used in operating activities during 2006 were as follows: an increase in accounts receivable of $83,366, a decrease in inventory of $17,010, a decrease in accounts payable and accrued liabilities of $43,537, depreciation expense of $16,219, amortization expense of $4,584, a decrease in prepaid expenses of $3,780 and a decrease in 13 deferred income taxes of $4,899. Cash decreased during the nine months ended September 30, 2006 by $74,817 compared to an increase during the nine months ended September 30, 2005 of $246,343. Cash from operating activities in the nine months ended September 30, 2006 decreased primarily due to an increase in accounts receivable and a decrease in accounts payable and accrued liabilities. Amexdrug had $102,591 of cash and cash equivalents at September 30, 2006. Amexdrug borrowed $20,000 from the wife of the President of Amexdrug in August 2006 for operating expenses. Management does not anticipate that Amexdrug will need to obtain additional financing during the next twelve months. New Products ------------ Through its Dermagen, Inc. subsidiary, Amexdrug recently completed the development of five new products, two of which are over the counter pharmaceuticals. The products are used for the treatment of arthritis, fungus and athlete's foot. These products will be marketed through Biorx Pharmaceuticals, Inc., a subsidiary of Amexdrug, and the products will be sold to pharmacy chains, independent pharmacies and also to sport shops and natural food markets within the U.S. and internationally. 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 14 effectiveness and the design and operation of our disclosure controls and procedures as of September 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 September 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. In prior periods, 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. Though the material weakness still existed at September 30, 2006, we have implemented procedures that we feel will improve or resolve the matter prior to the annual audit. These procedures are as follows: * 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. 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None; not applicable. 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 three months ended September 30, 2006. 16 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 10, 2006 By: /s/ Jack Amin -------------------------------- Jack Amin Director, President, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer 17 - --------------------------------------------------------------------------------