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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2009
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission File number 0-7473
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AMEXDRUG CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 95-2251025
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State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
8909 West Olympic Blvd., Suite 208, Beverly Hills, CA 90211
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 855-0475
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common stock, par value $0.001
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(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act Yes [ ] No [x]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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 [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant has required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [x]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the voting and
non-voting common equity was last sold, or the average bid and asked price of
such common equity, as of the last business day of the registrant's most
recently completed second fiscal quarter. At June 30, 2009, the aggregate market
value of the voting and non-voting common equity held by non-affiliates was
$980,813 based upon 700,581 shares held by non-affiliates, and the average of
the bid price and the asked price of $1.40 per share.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of March 25, 2010, the
registrant had 8,458,581 shares of common stock issued and outstanding, and an
additional 11,900 shares held as treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424 (b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g. annual report to security holders
for fiscal year ended December 24, 1980). None
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TABLE OF CONTENTS
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Page
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PART I
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ITEM 1. BUSINESS....................................................... 3
ITEM 1A. RISK FACTORS................................................... 15
ITEM 1B. UNRESOLVED STAFF COMMENTS...................................... 18
ITEM 2. PROPERTIES..................................................... 18
ITEM 3. LEGAL PROCEEDINGS.............................................. 19
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.............. 19
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OR EQUITY SECURITIES........... 19
ITEM 6. SELECTED FINANCIAL DATA........................................ 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLSOURES ABOUT MARKET RISK..... 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................... 38
ITEM 9A. CONTROLS AND PROCEDURES........................................ 38
ITEM 9B. OTHER INFORMATION.............................................. 39
PART III
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE......... 39
ITEM 11. EXECUTIVE COMPENSATION......................................... 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.................. 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE....................................... 45
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES......................... 47
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES..................... 48
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PART I
Note Regarding Forward Looking Statements
MANY STATEMENTS MADE IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS THAT
ARE NOT BASED ON HISTORICAL FACTS. ANY FORWARD-LOOKING STATEMENTS INCLUDED IN
THIS REPORT REFLECT MANAGEMENT'S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN
AND INVOLVE RISKS AND UNCERTAINTIES. BECAUSE THESE FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES, THERE ARE IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY VARY MATERIALLY.
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ITEM 1. BUSINESS
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Business Development
History
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Amexdrug Corporation, a Nevada corporation, is a holding company. It 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 28 years.
Amexdrug Corporation, through its wholly-owned subsidiaries, BioRx
Pharmaceuticals, Inc., Allied Med, Inc., Dermagen, Inc. and Royal Health Care,
Inc., is a pharmaceutical and cosmeceutical company specializing in the research
and development, manufacturing and distribution of pharmaceutical drugs,
cosmetics and distribution of prescription and over-the-counter drugs, private
manufacturing and labeling and a quality control laboratory. At Amexdrug
Corporation, it is our anticipation to give our clientele the opportunity to
purchase cost effective products while maximizing the return of investments to
our shareholders.
Amexdrug Corporation distributes its products through its subsidiaries, BioRx
Pharmaceuticals, Inc., Allied Med, Inc., Dermagen, Inc. and Royal Health Care,
Inc. primarily to independent pharmacies and secondarily to small and
medium-sized pharmacy chains, alternative care facilities and other wholesalers
and retailers in the state of California.
We plan to introduce three skin care over the counter (OTC) and natural products
in 2010, which are in various stages of development. We presently market twelve
products under the Sponix name. Our team of professionals fully pledges the
effectiveness of our distinct products.
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.
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References in this report to "we," "our," "us," the "Company" and "Amexdrug"
refer to Amexdrug Corporation and also to our subsidiaries, BioRx
Pharmaceuticals, Inc., Allied Med, Inc., Dermagen, Inc. and Royal Health Care,
Inc. where appropriate.
Amexdrug currently has 50,000,000 shares of authorized common stock $.001 par
value, of which 8,458,581 are issued and outstanding, and an additional 11,900
shares held as treasury shares.
Significant acquisitions
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BioRx Pharmaceuticals
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On November 8, 2004, Amexdrug formed a new subsidiary, BioRx Pharmaceuticals,
Inc. as a Nevada corporation. BioRx Pharmaceuticals, Inc. is committed to offer
over the counter (OTC) products that are recommended with trust and faith by
physicians, primarily podiatrists and dermatologists. The focus and mission of
BioRx Pharmaceuticals, Inc. is to create, develop and manufacture products to
help ease pain and restore and maintain the overall well-being of our customers.
We strive for high performance and quality. Our commitment is to offer natural
and OTC products that are recommended with confidence by doctors and pharmacists
and that the customer can use with pleasure. Our compliance program is
diligently followed through the Company. BioRx Pharmaceuticals, Inc. maintains
high ethics for animal welfare and our products are never tested on animals. All
products are made in the USA.
A total of twelve products have been manufactured for sale by BioRx
Pharmaceuticals, Inc., and a total of three products are under different stages
of development. These over-the-counter and natural products are effective for
treatment of fungus, arthritis, sunburn protection and for healthy feet and
nails. BioRx Pharmaceuticals is planning to sell these products to national
chain drugstores, sport chain stores, natural food markets and other mass
markets. These products will be marketed under the names of Sponix and Bactivex,
and will be sold under the name of BioRx Pharmaceuticals.
Allied Med, Inc.
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On December 31, 2001, Amexdrug acquired all of the issued and outstanding common
shares of Allied Med, Inc., an Oregon corporation, in a share exchange in a
related party transaction.
Allied Med, Inc., was formed as an Oregon corporation in October 1997 to operate
in the pharmaceutical wholesale business of selling a full line of 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 assumed the operations of Allied Med, and Amexdrug has been building on
the wholesale pharmaceutical operations of Allied Med.
The accompanying financial information includes the operations of Allied Med for
all periods presented and the operations of Amexdrug Corporation from April 25,
2000.
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Dermagen, Inc.
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Amexdrug completed its purchase of Dermagen, Inc. on October 7, 2005. Dermagen,
Inc. is now an operating subsidiary of Amexdrug. The acquisition of Dermagen,
Inc. is not considered to be an acquisition of an 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. Dermagen's competitive
advantage is in its superior product research and development for large leading
domestic and international companies.
Royal Health Care Company
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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 Dermagen, Inc. 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
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.
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.
Business Segments
Since 2005, Amexdrug has had 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 and health
and beauty products. Health and Beauty Products consist of the manufacture and
distribution of primarily health and beauty products.
Industry trends
Pharmaceutical and healthcare markets
According to IMS Health, a company specializing in information services for the
pharmaceutical and health care industries, the United States is the world's
largest pharmaceutical market, with 2000 sales of $150 billion, including
diagnostics and over-the-counter drugs. That figure is expected to increase due
to a number of factors including:
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. the value added by the introduction of new drugs into the
marketplace, which more than offsets the value lost by
medications losing patent protection;
. new patterns of drug lifestyle management, resulting in higher
sales occurring earlier in the life cycle of a medication;
. increased money spent on direct-to-consumer marketing
initiatives; and
. an unprecedented period of investment by pharmaceutical
companies worldwide.
Amexdrug believes that, currently, the pharmaceutical and health care product
markets are serviced primarily by traditional full-line wholesalers.
Internet
The Internet has emerged as the fastest growing communications medium in history
and is dramatically changing how businesses and individuals communicate and
share information. The Internet has created new opportunities for conducting
commerce, such as business-to-consumer and person-to-person e-commerce.
Recently, the widespread adoption of intranets and the acceptance of the
Internet as a business communications platform has created a foundation for
business-to-business e-commerce that offers the potential for organizations to
streamline complex processes, lower costs and increase productivity.
Internet-based business-to-business e-commerce has experienced significant
growth. According to Gartner Group, worldwide business-to-business Internet
revenue was $433.3 billion in 2000. Significant growth in the industry has been
forecasted. Amexdrug hopes, although it cannot guarantee, that it will benefit
from this growth.
The dynamics of business-to-business e-commerce relationships differ
significantly from those of other e-commerce relationships. Business-to-
business e-commerce solutions frequently automate processes that are fundamental
to a business' operations by replacing various paper-based transactions with
electronic communications. In addition, business-to-business e-commerce
solutions must often be integrated with a customer's existing systems, a process
that can be complex, time-consuming and expensive. Consequently, selection and
implementation of a business-to-business e-commerce solution represents a
significant commitment by the customer, and the costs of switching solutions are
high. In addition, because business transactions are typically recurring and
non-discretionary, the average order size and lifetime value of a
business-to-business e-commerce customer is generally greater than that of a
business-to-consumer e-commerce customer. These solutions are likely to be most
readily accepted by industries characterized by a large number of buyers and
sellers, a high degree of fragmentation among buyers, sellers or both,
significant dependence on information exchange, large transaction volume and
user acceptance of the Internet.
Objectives and strategy
Amexdrug's key business objective is to become a leading full-line wholesale
distributor of pharmaceuticals, over-the-counter products, health and beauty
care products and nutritional supplements, with an emphasis on online sales.
To accomplish this objective, Amexdrug plans to:
. market its name, products and services to create brand
recognition and generate and capture traffic on its websites;
. provide quality products at competitive prices and efficient
service;
. develop strategic relationships that increase Amexdrug's
product offerings; and
. attract and retain exceptional employees.
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Sales and marketing, customer service and support
Our products are sold both through traditional wholesale distribution lines and
e-commerce venues, including our website, www.amwrx.com. We believe our
e-commerce, business-to-business model will allow the Company to leverage its
existing wholesale distribution business, thus increasing its ability to
effectively market and distribute its products. The Company uses a variety of
programs to stimulate demand for its products and increase traffic to its
websites, including a direct sales force, telemarketing, blast faxing and
advertising.
Direct sales
The Company maintains employees to act as its direct sales force to target
organizations that buy and sell the products it carries.
Telemarketing
The Company maintains an in-house telemarketing group for use in customer
prospecting, lead generation and lead follow-up.
Blast faxing
The Company has an automated system which it uses to fax weekly updates to its
customers informing them of special offers during the week.
Advertising
The Company advertises in trade journals, and at trade shows, and the Company
will seek to engage in co-branding arrangements in the future. In addition to
strategic agreements and traditional advertising, the Company, will, as revenue
allows, implement online sales and marketing techniques in an attempt to
increase brand recognition and direct traffic to its website. Some of these
techniques may include banner ads on search engine websites and Internet
directories, direct links from healthcare home pages, and mass e-mailings.
Customer service and support
Amexdrug believes that it can establish and maintain long-term relationships
with its customers and encourage repeat visits if, among other things, the
Company has excellent customer support and service. The Company currently offers
information regarding its products and services and answers customer questions
about the ordering process, and investigates the status of orders, shipments and
payments. A customer can access the Company by fax or e-mail by following
prompts located on the Company's website or by calling the Company's toll-free
telephone line.
Promotion of website
As revenue allows, the Company will promote, advertise and increase recognition
of its website through a variety of marketing and promotional techniques,
including:
. developing co-marketing agreements with major online sites and
services;
. enhancing online content and ease of use of its website;
. enhancing customer service and technical support;
. advertising in trade journals and at industry trade shows;
. conducting an ongoing public relations campaign; and
. developing other business alliances and partnerships.
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Distribution
The Company distributes its Allied Med products from its facility in Beverly
Hills, California. Dermagen, Inc. manufactures and distributes its products from
Fullerton, California. The Company fills orders with a combination of existing
inventory and products it orders from suppliers. Currently, customers are
receiving their products within 24 to 48 hours of order placement. As funds
allow, the Company will increase its in-house inventory of products to allow for
shorter delivery times.
Purchasing and Manufacturing
Allied Med, Inc. purchases its products primarily from manufacturers and
secondarily from other wholesalers and distributors. Allied Med's purchasing
department constantly monitors the market to take advantage of periodic volume
discounts, market discounts and pricing changes. Dermagen, Inc. purchases its
raw materials from suppliers, and manufactures its products in Fullerton,
California for its customers.
Technology and security
The Company website is hosted and maintained by a third party. This provider
delivers a secure platform for server hosting, including various safety features
to protect the information residing in its servers. Moreover, the Company does
not release information about its customers to third parties without the prior
written consent of its customers unless otherwise required by law.
Notwithstanding these precautions, the Company cannot assure that the security
mechanisms will prevent security breaches or service breakdowns. Despite the
implemented security measures, servers can be vulnerable to computer viruses,
physical or electronic break-ins or other similar disruptions. Such a disruption
could lead to interruptions or delays in service, loss of data, or an inability
to accept and fulfill online customer orders. Any of these events could
materially affect the Company's business.
Management information system
The Company's information system is maintained on an IBM AS 400 platform. The
accounting information for sales, purchases, perpetual inventory transactions,
cash receipts and disbursements and sophisticated management reports are
provided timely for analytical and bookkeeping purposes. Also, the order entry
system was designed specifically for the Company and allows its customers to
order product 24 hours per day either via fax, internet or phone modem. The
system provides data to management enabling it to review sales trends and
customer base, monitor inventory levels, credit and collection issues, and
purchasing frequency and cost anticipation. Communication and availability of
data is possible through a local area network ring.
Competition
Amexdrug faces strong competition both in price and service from national,
regional and local full-line, short-line and specialty wholesalers, service
merchandisers, self-warehousing chains and from manufacturers engaged in direct
distribution. Many of our current and potential competitors have longer
operating histories and much larger customer bases than we have. In addition,
many of our competitors have greater brand recognition and significantly greater
financial, marketing and other resources. To compete successfully, we have had
to constantly monitor our competitive situation and develop strategies to allow
us to compete with other companies who are able to:
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. secure merchandise from vendors on more favorable terms;
. devote greater resources to marketing and promotional
campaigns; and
. adopt more aggressive pricing or inventory availability
policies.
In addition, many of our competitors have developed or may be able to develop
e-commerce operations that compete with our e-commerce operations, and may be
able to devote substantially more resources to website development and systems
development than we do. The online commerce market is new, rapidly evolving and
intensely competitive. The Company expects competition to intensify in the
future because barriers to entry are minimal, and current and new competitors
can launch new websites at relatively low cost. The Company believes that the
critical success factors for companies seeking to create Internet
business-to-business e-commerce solutions include the following:
. breadth and depth of product offerings;
. brand recognition;
. depth of existing customer base; and
. ease of use and convenience.
Unlike other well-publicized product categories such as online book or compact
disc retailing, there is no current market leader in its online business-to-
business market segment. The Company's immediate goal is to position itself as a
leading business-to-business e-commerce and online trade exchange provider for
pharmaceuticals, over-the-counter products, health and beauty care products and
nutritional supplements. To that end, we believe that our early entry into the
online market may enable us to establish critical competitive advantages over
future competitors. We believe that such competitive advantages include:
. the establishment of a recognizable brand;
. the development of online marketing and media relationships;
. the development of important relationships with manufacturers,
distributors, wholesalers and content providers; and
. exposure to an existing customer base.
However, competitive pressures created by any one of its current or future
competitors, or by its competitors collectively, could materially affect the
Company's business. We believe that the principal competitive factors in its
market are and will be:
. brand recognition . customer service
. speed and accessibility . reliability and speed of
. quality of site content fulfillment
. convenience . price
. selection
Government regulations and legal uncertainties
Healthcare regulation
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The manufacturing, packaging, labeling, advertising, promotion, distribution and
sale of most of the products we distribute are subject to regulation by numerous
governmental agencies, particularly the United States Food and Drug
Administration, which regulates most of the products we distribute under the
Federal Food, Drug and Cosmetic Act, and the United States Federal Trade
Commission, which regulates the advertising of many of the products we
distribute under the Federal Trade Commission Act. The products we distribute
are also subject to regulation by, among other regulatory agencies, the Consumer
Product Safety Commission, the United States Department of Agriculture, the
United States Department of Environmental Regulation and the Occupational Safety
and Health Administration. The manufacturing, labeling and advertising of the
products we distribute is also regulated by the Occupational Safety and Health
Administration through various state and local agencies.
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Furthermore, Amexdrug and/or its customers are subject to extensive licensing
requirements and comprehensive regulation governing various aspects of the
healthcare delivery system, including the so called "fraud and abuse" laws. The
fraud and abuse laws preclude:
. persons from soliciting, offering, receiving or paying any
remuneration in order to induce the referral of a patient for
treatment or for inducing the ordering or purchasing of items
or services that are in any way paid for by Medicare or
Medicaid, and
. physicians from making referrals to certain entities with which
they have a financial relationship.
The fraud and abuse laws and regulations are broad in scope and are subject to
frequent modification and varied interpretations. Significant criminal, civil
and administrative sanctions may be imposed for violation of these laws and
regulations.
The Company's advertising of dietary supplement products is also subject to
regulation by the Federal Trade Commission under the Federal Trade Commission
Act, in addition to state and local regulation. The Federal Trade Commission Act
prohibits unfair methods of competition and unfair or deceptive acts or
practices in or affecting commerce. The Federal Trade Commission Act also
provides that the dissemination or the causing to be disseminated of any false
advertisement pertaining to drugs or foods, which would include dietary
supplements, is an unfair or deceptive act or practice. Under the Federal Trade
Commission's Substantiation Doctrine, an advertiser is required to have a
"reasonable basis" for all objective product claims before the claims are made.
Failure to adequately substantiate claims may be considered either deceptive or
unfair practices. Pursuant to this Federal Trade Commission requirement, the
Company is required to have adequate substantiation for all material advertising
claims made for its products.
The Company may be subject to additional laws or regulations by the Food and
Drug Administration or other federal, state or foreign regulatory authorities,
the repeal of laws or regulations which the Company considers favorable, such as
the Dietary Supplement Health and Education Act of 1994, or more stringent
interpretations of current laws or regulations, from time to time in the future.
We cannot predict the nature of such future laws, regulations, interpretations
or applications, nor can we predict what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on our
business in the future. The Food and Drug Administration or other governmental
regulatory bodies could, however, require the reformulation of certain products
to meet new standards, the recall or discontinuance of certain products not able
to be reformulated, imposition of additional record keeping requirements,
expanded documentation of the properties of certain products, expanded or
different labeling and scientific substantiation. Any or all of such
requirements could have a material and adverse effect on our business.
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The products we distribute function within the structure of the
healthcare financing and reimbursement system of the United States. As a result
of a wide variety of political, economic and regulatory influences, this system
is currently under intense scrutiny and subject to fundamental changes. In
recent years, the system has changed significantly in an effort to reduce costs.
These changes include increased use of managed care, cuts in Medicare,
consolidation of pharmaceutical and medical-surgical supply distributors, and
the development of large, sophisticated purchasing groups. In addition, a
variety of new approaches have been proposed to continue to reduce cost,
including mandated basic healthcare benefits and controls on healthcare spending
through limitations on the growth of private health insurance premiums and
Medicare and Medicaid spending. The Company anticipates that Congress and state
legislatures will continue to review and assess alternative healthcare delivery
systems and payment methods and that public debate with respect to these issues
will likely continue in the future. Because of uncertainty regarding the
ultimate features of reform initiatives and their enactment and implementation,
the Company cannot predict which, if any, of such reform proposals will be
adopted, when they may be adopted, or what impact they may have on the Company.
The Company expects the healthcare industry to continue to change significantly
in the future. Some of these changes, such as a reduction in governmental
support of healthcare services or adverse changes in legislation or regulations
governing the privacy of patient information, or the delivery of pricing of
pharmaceuticals and healthcare services or mandated benefits, may cause
healthcare industry participants to greatly reduce the amount of the Company's
products and services they purchase or the price they are willing to pay for the
products we distribute. Changes in pharmaceutical manufacturers' pricing or
distribution policies could also significantly reduce our income.
While the Company uses its best efforts to adhere to the regulatory and
licensing requirements, as well as any other requirements affecting the products
we distribute, compliance with these often requires subjective legislative
interpretation. Consequently, we cannot assure that our compliance efforts will
be deemed sufficient by regulatory agencies and commissions enforcing these
requirements. Violation of these regulations may result in civil and criminal
penalties, which could materially and adversely affect our operations.
Internet regulation
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Few laws currently regulate the Internet. Because of the Internet's popularity
and increasing use, new laws and regulations may be adopted. Such laws and
regulations may cover issues such as:
. user privacy . distribution
. pricing . taxation
. content . characteristics and quality of
products
. copyrights . services
Laws and regulations directly applicable to electronic commerce or Internet
communications are becoming more prevalent. We believe that our use of third
party material on our website is permitted under current provisions of copyright
law. Because legal rights to certain aspects of Internet content and commerce
are not clearly settled, our ability to rely upon exemptions or defenses under
copyright law is uncertain. Also, although not yet enacted, Congress is
considering laws regarding Internet taxation. In addition, various jurisdictions
already have enacted laws that are not specifically directed to electronic
commerce but that could affect its business. The applicability of many of these
laws to the Internet is uncertain and could expose the Company to substantial
liability. Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could materially
and adversely affect the Company. If the Company were alleged to violate
federal, state or foreign, civil or criminal law, even if the Company could
successfully defend such claims, it could materially and adversely affect the
Company.
11
Additionally, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission in the same manner as other telecommunications services. Furthermore,
local telephone carriers have petitioned the Federal Communications Commission
to regulate Internet service providers and online service providers in a manner
similar to long distance telephone carriers and to impose access fees on such
providers. If either of these petitions are granted, the costs of communicating
on the Internet could increase substantially. This, in turn, could slow the
growth of use of the Internet. Any such legislation or regulation could
materially and adversely affect its business, financial condition and operating
results.
Research and Development
Amexdrug engages in some research and development of its products. Total
research and development costs were $123,328 and $44,576 for the years ended
December 31, 2009 and 2008, respectively. Amexdrug anticipates that research and
development costs to be incurred in 2010 will be similar in amount to the
research and development costs incurred in 2009.
Intellectual Property and Patent Protection
We presently have no patents, and we have no immediate plans to pursue any
patents.
We believe that protecting the Company's trademarks and registered domain name
is important to our business strategy of building strong brand name recognition
and that such trademarks have significant value in the marketing of the
Company's products. To protect our proprietary rights, the Company will rely on
copyright, trademark and trade secret laws, confidentiality agreements with
employees and third parties, and license agreements with consultants, vendors
and customers. Despite such protections, however, we may be unable to fully
protect our intellectual property.
Dependence on major suppliers
During the year ended December 31, 2009, purchases from two suppliers accounted
for 82% and 14% of total purchases, respectively. Accounts payable to these two
suppliers accounted for 85% and 14% of the total accounts payable balance as of
December 31, 2009, respectively. During the year ended December 31, 2008,
purchases from the same two suppliers accounted for 75% and 21% of our total
purchases, respectively. Accounts payable to these two suppliers accounted for
78% and 18% of the total accounts payable balance as of December 31, 2008. We
presently enjoy a good relationship with our suppliers. If for any reason our
business with our suppliers was interrupted or discontinued in the future, we
would be able to acquire most, if not all, of the same products from other
suppliers at similar competitive prices. However, the loss of our largest
supplier could have a potential negative effect upon our future operations.
Dependence on major customers
Two customers accounted for 10% or more of our sales during the year ended
December 31, 2009. Two customers accounted for 10% or more of our sales during
the year ended December 31, 2008. They accounted for approximately 16% and 11%
of our 2009 sales, respectively, and 30% and 11% of our 2008 sales,
respectively.
12
Employees
The Company currently employs twelve full time and two part time employees. Nine
of the full time employees have been hired since October 2008, and they work in
the Company's new marketing office located in the Philippines, and work on
marketing the Company's products in the U.S. Labor unions do not represent any
of these employees. The Company considers its employee relations to be good.
Competition for qualified personnel in its industry is intense, particularly for
technical staff responsible for marketing, advertising, web development, and
general and administrative activities.
Employees will be permitted to participate in employee benefit plans of the
Company that may be in effect from time to time, to the extent eligible.
Physical facilities
The Company's principal executive offices and its Allied Med, Inc. operations
are located in Beverly Hills, California. The Company leases approximately 800
square feet of office space for approximately $1,160 per month. This space is
leased on a month to month basis under a verbal lease. The Company believes this
space will be sufficient for at least the next twelve months.
The Company's Dermagen, Inc. operations are currently located at 2500 East
Fender Avenue, Units H, I & K, Fullerton, California, which is leased under
three separate lease agreements, and 2488 East Fender Avenue, Unit I, Fullerton,
California, which is leased under one lease agreement.
Information concerning the three lease agreements at 2500 East Fender Avenue
follows. One written lease applies to Unit H which is approximately 1,600 square
feet. The monthly lease payment for Unit H is approximately $960, and the
initial lease expired February 28, 2010. The Company exercised an option to
renew the lease of Unit H for an additional seven months at a lease rate of $896
per month. A second written lease applies to Units I & J which contain
approximately 1,600 square feet. The monthly lease payment for Units I & J is
approximately $2,464, and the lease expires November 30, 2010. The third written
lease applies to Unit K which is approximately 3,520 square feet. The monthly
lease payment for Unit K is approximately $1,120, and the lease expires November
30, 2010.
Information concerning the one lease agreement at 2488 East Fender Avenue
follows. A written lease applies to Unit I which is approximately 1,400 square
feet. The monthly lease payment for Unit I is approximately $840, and the lease
expires May 31, 2010. The Company has an option to renew the lease of Unit I an
additional seven months at a lease rate of $840 per month. The Company presently
intends to exercise its option to renew the lease of Unit I for an additional
seven months.
In October 2008, the Company opened a new marketing office located in Manila,
Philippines. The office is approximately 800 square feet in size, and the
Company pays $175 per month for rent under a verbal lease agreement. The Company
believes this space will be sufficient for at least the next twelve months.
The Company believes that the various facilities covered by the leases described
above will be sufficient for at least the next twelve months.
13
Company history prior to the acquisition of Allied Med, Inc.
The Company was incorporated under the laws of the State of California on April
30, 1963 with authorized common stock of 10,000,000 shares at a par value of
$.10 and 1,000,000 preferred shares with a par value of $1.00 under the name of
Harlyn Products, Inc. Harlyn Products, Inc. was engaged in the business of
selling jewelry to department stores until the mid-1990s.
Solely for the purpose of changing domicile from California to Nevada, on
December 12, 2001, Amexdrug Corporation, a California corporation, entered into
a certain Merger Agreement with a newly formed, wholly-owned subsidiary Nevada
corporation named Amexdrug Corporation. The Nevada corporation had been
incorporated on December 4, 2001. As a result of the merger, which became
effective on December 17, 2001, the Company became a Nevada corporation and the
separate existence of the California corporation ceased. At the time of the
merger, the Company changed its fiscal year end from June 30 to December 31.
Asset acquisitions following the acquisition of Allied Med, Inc.
In December 2002, Jack Amin's wife contributed four undeveloped parcels of real
property to Allied Med, Inc. as an additional capital contribution to the
Company. In October 2003, Jack Amin's wife contributed an additional four
undeveloped parcels of real property to Allied Med, Inc. as an additional
capital contribution to the Company. These eight undeveloped parcels of real
property were subsequently transferred by Allied Med, Inc. in 2004 to a third
party as part of a litigation settlement.
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
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.
Amexdrug completed its purchase of Dermagen, Inc. on October 7, 2005 with
Amexdrug paying $70,000 cash to the Dermagen, Inc. shareholders. Dermagen, Inc.
is now an operating subsidiary of Amexdrug.
Dermagen, Inc. is a rapidly growing manufacturing company specializing in the
manufacturing and distribution of certain pharmaceuticals, medical devices,
health and beauty products. Dermagen 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.
14
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. Currently, Royal Health Care, Inc. has no
assets, liabilities, or operations.
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. Currently,
BioRx Pharmaceuticals, Inc. has assets, liabilities, and operations.
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ITEM 1A. RISK FACTORS
- --------------------------------------------------------------------------------
You should carefully consider the risks and uncertainties described below and
other information in this report. If any of the following risks or uncertainties
actually occur, our business, financial condition and operating results, would
likely suffer. Additional risks and uncertainties, including those not yet
identified or that we currently believe are immaterial, may also adversely
affect our business, financial condition or operating results.
Risks Relating to Our Business
- ------------------------------
The industry in which Amexdrug operates is highly competitive and could affect
our results of operations.
The industry in which we operate is highly competitive and is marked by changes
and new products. Our competitors and potential competitors include many large
national and international companies as well as medium and small sized
companies. Most existing and potential competitors have greater financial
resources, larger market share, and larger production and research capability,
which may enable them to establish and/or maintain a stronger competitive
position than we have. If we fail to address competitive developments quickly
and effectively, we will not be able to grow our business or remain a viable
entity.
Our business could be adversely affected by any adverse economic developments in
wholesale pharmaceutical distribution and health and beauty products.
We depend on the demand for our products in the U.S. Therefore, our business is
susceptible to downturns in the wholesale pharmaceutical distribution and health
and beauty products industry and the economy in general. Any significant
downturn or worsening in the market or in general economic conditions would
likely hurt our business.
If we fail to keep up with changes affecting our products, we will become less
competitive and thus adversely affect future financial performance.
In order to remain competitive, we must respond on a timely and cost-efficient
basis to changes in our industry in general, industry standards and procedures
and customer preferences. Management believes that to remain competitive, we
will need to continuously obtain and/or develop new products and applications
for existing products. In some cases these changes may be significant and the
cost to comply with these changes may be substantial. We cannot assure you that
we will be able to adapt to any changes in the future or that we will have the
financial resources to keep up with changes in the marketplace. Also, the cost
of adapting to any changes in our products may have a material and adverse
effect on our operating results.
15
Our business could be adversely affected by local, state, national,
international laws or regulations.
Our future success depends in part on laws and regulations that exist, or are
expected to be enacted in the geographical areas where we do business. These
laws and regulations could negatively affect our business and anticipated
revenues. We cannot guarantee a positive outcome in direction, timing, or scope
of laws and regulations that may be enacted which will affect our business.
Our future success depends on retaining our existing key employees and hiring
and assimilating new key employees. The loss of key employees or the inability
to attract new key employees could limit our ability to execute our growth
strategy, resulting in lost sales and a slower rate of growth.
Our future success depends in part on our ability to retain our key employees
including our president. We do not presently have employment agreements with our
executives, each executive may be able to terminate his or her agreement at any
time. It would be difficult for us to replace our president. In addition, as we
grow we may need to hire additional key personnel. We may not be able to
identify and attract high quality employees or successfully assimilate new
employees into our existing management structure.
We may be unable to protect our intellectual property adequately or cost
effectively, which may cause us to lose market share or reduce prices.
Our future success depends in part on our ability to protect and preserve
proprietary rights related to our products. We cannot assure you that we will be
able to prevent third parties from using our intellectual property rights and
technology without our authorization. We have not obtained any patents on our
products. We rely on trade secrets, common law trademark rights and trademark
registrations. We may also employ confidentiality and work for hire,
development, assignment and license agreements with employees, consultants,
third party developers, licensees and customers. However, these measures afford
only limited protection and may be flawed or inadequate. Also, enforcing
intellectual property rights could be costly and time-consuming and could
distract management's attention from operating business matters.
Our intellectual property may infringe on the rights of others, resulting in
costly litigation.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. In particular, there
has been an increase in the filing of suits alleging infringement of
intellectual property rights, which pressure defendants into entering settlement
arrangements quickly to dispose of such suits, regardless of their merits. Other
companies or individuals may allege that we infringe on their intellectual
property rights. Litigation, particularly in the area of intellectual property
rights, is costly and the outcome is inherently uncertain. In the event of an
adverse result against future rights we may acquire, we could be liable for
substantial damages and we may be forced to discontinue our use of the subject
matter in question or obtain a license to use those rights or develop
non-infringing alternatives. Any of these results would increase our cash
expenditures, adversely affecting our financial condition.
16
Risks Relating to Ownership of Our Common Stock
We cannot assure you that there will be an active trading market for our common
stock and it could be difficult for holders of our common stock to liquidate
their shares.
Our common stock is quoted on the OTC Bulletin Board. The price of our shares
has been volatile, our shares are thinly traded, and liquidation of a person's
holdings may be difficult. Thus, holders of our common stock may be required to
retain their shares for a long period of time.
We do not anticipate paying dividends in the foreseeable future, which could
make our stock less attractive to potential investors.
We anticipate that we will retain any future earnings and other cash resources
for future operations and development of our business and do not intend to
declare or pay any cash dividends in the foreseeable future. Any future payment
of cash dividends will be at the discretion of our board of directors after
taking into account many factors, including our operating results, financial
condition and capital requirements. Corporations that pay dividends may be
viewed as a better investment than corporations that do not.
Future sales or the potential for sale of a substantial number of shares of our
common stock could cause our market value to decline and could impair our
ability to raise capital through subsequent equity offerings.
Sales of a substantial number of shares of our common stock in the public
markets, or the perception that these sales may occur, could cause the market
price of our common stock to decline and could materially impair our ability to
raise capital through the sale of additional equity securities.
It may be difficult for a third party to acquire us, and this could depress our
stock price.
Under Nevada corporate law, we are permitted to include or exclude certain
provisions in our articles of incorporation and/or by-laws that could discourage
information contests and make it more difficult for you and other stockholders
to elect directors and take other corporate actions. As a result, these
provisions could limit the price that investors are willing to pay in the future
for shares of our common stock. For example:
o Under Nevada law, we are not required to provide for, and our
by-laws do not provide for, cumulative voting in the election
of directors, which would otherwise allow less than a majority
of stockholders to elect director candidates; and
o Stockholders cannot call a special meeting of stockholders
unless they, in the aggregate, hold at least 10% of our common
stock.
Trading in our shares is subject to certain "penny stock" regulation which could
have a negative effect on the price of our shares in the public trading market.
Public trading of our common stock on the OTCBB is subject to certain
provisions, commonly referred to as the penny stock rule, promulgated under the
Securities Exchange Act of 1934. A penny stock is generally defined to be any
equity security that has a market price less than $5.00 per share, subject to
certain exceptions. If our stock is deemed to be a penny stock, trading in our
stock will be subject to additional sales practice requirements on
broker-dealers. These may require a broker dealer to:
17
o make a special suitability determination for purchasers of
penny stocks;
o receive the purchaser's written consent to the transaction
prior to the purchase; and
o deliver to a prospective purchaser of a penny stock, prior to
the first transaction, a risk disclosure document relating to
the penny stock market.
Consequently, penny stock rules restrict the ability of broker-dealers to trade
and/or maintain a market in our common stock. Also, many prospective investors
may not want to get involved with the additional administrative requirements,
which may have a material adverse effect on the trading of our shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
Operating facilities
The Company's Dermagen, Inc. operations are currently located at 2500 East
Fender Avenue, Units H, I & K, Fullerton, California, which is leased under
three separate lease agreements, and 2488 East Fender Avenue, Unit I, Fullerton,
California, which is leased under one lease agreement.
Information concerning the three lease agreements at 2500 East Fender Avenue
follows. One written lease applies to Unit H which is approximately 1,600 square
feet. The monthly lease payment for Unit H is approximately $960, and the
initial lease expired February 28, 2010. The Company exercised an option to
renew the lease of Unit H for an additional seven months at a lease rate of $896
per month. A second written lease applies to Units I & J which contain
approximately 1,600 square feet. The monthly lease payment for Units I & J is
approximately $2,464, and the lease expires November 30, 2010. The third written
lease applies to Unit K which is approximately 3,520 square feet. The monthly
lease payment for Unit K is approximately $1,120, and the lease expires November
30, 2010.
Information concerning the one lease agreement at 2488 East Fender Avenue
follows. A written lease applies to Unit I which is approximately 1,400 square
feet. The monthly lease payment for Unit I is approximately $840, and the lease
expires May 31, 2010. The Company has an option to renew the lease of Unit I an
additional seven months at a lease rate of $840 per month. The Company presently
intends to exercise its option to renew the lease of Unit I for an additional
seven months.
Executive offices and Allied Med operations
Amexdrug's executive offices and its Allied Med operations are presently located
at 8909 W. Olympic Boulevard, Suite 208, Beverly Hills, California 90211, and
consist of three offices and a reception area comprising approximately 800
square feet. Amexdrug leases its executive facilities on a month to month basis
under an oral lease agreement from an unrelated third party. The monthly lease
payment under this lease is approximately $1,160. The Company believes this
space will be sufficient for at least the next twelve months.
18
Marketing office
In October 2008, the Company opened a new marketing office located in Manila,
Philippines. The office is approximately 800 square feet in size, and the
Company pays $175 per month for rent under a verbal lease agreement. The Company
believes this space will be sufficient for at least the next twelve months.
Adequacy of Facilities
The Company believes that the various facilities covered by the leases described
above will be sufficient for at least the next twelve months.
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ITEM 3. 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
No matter was submitted to a vote of our security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
- --------------------------------------------------------------------------------
Market information
Our common stock is presently traded in the over-the-counter market and quoted
on the National Association of Securities Dealers' OTC Bulletin Board under the
ticker symbol "AXRX.OB". The shares are thinly traded and a limited market
presently exists for the shares. The following table describes, for the
respective periods indicated, the prices of Amexdrug common stock in the
over-the-counter market, based on inter-dealer bid prices, without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions. The quotations have been provided by market makers in common stock
and/or Pink Sheets LLC.
Quarter ended High bid Low bid
- ------------- -------- -------
March 31, 2009 $0.70 $0.30
June 30, 2009 $0.90 $0.10
September 30, 2009 $2.10 $0.286
December 31, 2009 $5.00 $1.50
19
March 31, 2008 $1.20 $1.10
June 30, 2008 $1.10 $1.10
September 30, 2008 $1.10 $0.30
December 31, 2008 $0.30 $0.30
Based on its trading price, our common stock is considered a "penny stock" for
purposes of federal securities laws, and therefore has been subject to certain
regulations, which are summarized below.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires special
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a "penny stock." Specifically, Rules 15g-1 through 15g-9
under the Securities Exchange Act of 1934 (the "Exchange Act") impose sales
practice and disclosure requirements on NASD broker-dealers who make a market in
a "penny stock." Securities and Exchange Commission regulations generally define
a penny stock to be an equity security that has a market price of less than
$5.00 per share and is not listed on The NASDAQ SmallCap Stock Market or a major
stock exchange. These regulations affect the ability of broker-dealers to sell
the Company's securities and also may affect the ability of purchasers of the
Company's common stock to sell their shares in the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor," generally, an
individual with net worth in excess of $1,000,000 or an annual income exceeding
$200,000, or $300,000 together with his or her spouse, must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to sale, unless the broker-dealer or
the transaction is otherwise exempt. In addition, the penny stock regulations
require the broker-dealer to deliver, prior to any transaction involving a penny
stock, a disclosure schedule prepared by the Commission relating to the penny
stock market, unless the broker-dealer or the transaction is otherwise exempt. A
broker-dealer is also required to disclose commissions payable to the
broker-dealer and the registered representative and current quotations for the
securities. Finally, a broker-dealer is required to send monthly statements
disclosing recent price information with respect to the penny stock held in a
customer's account and information with respect to the limited market in penny
stocks.
As long as the penny stock regulations apply to the Company's stock, it may be
difficult to trade such stock because compliance with the regulations can delay
and/or preclude certain trading transactions. Broker-dealers may be discouraged
from effecting transactions in the Company's stock because of the sales practice
and disclosure requirements for penny stock. This could adversely affect the
liquidity and/or price of the Company's common stock, and impede the sale of the
Company's stock.
Holders
The number of record holders of Amexdrug's common stock as of March 25, 2010 is
approximately 190. This number does not take into consideration stockholders
whose shares are held by broker-dealers, finance institutions or other nominees.
Dividend Policy
Amexdrug has not declared any cash dividends with respect to its common stock
during the last two fiscal years, and we do not intend to declare dividends in
the foreseeable future. There are no material restrictions limiting, or that are
likely to limit, Amexdrug's ability to pay dividends on our securities, except
for any applicable limitations under Nevada corporate law.
20
Equity Compensation Plans
The Company has not approved any compensation plans under which equity
securities of the Company are authorized for issuance.
Recent sales of unregistered securities
During the past three years, Amexdrug has not sold any shares of its common
stock without registration under the Securities Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
A smaller reporting company is not required to provide the information specified
by this item.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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Forward Looking Statements
The following information contained in this Item 7 should be read in conjunction
with the financial statements and accompanying notes and the other financial
information appearing elsewhere in this Form 10-K. The Company's fiscal year end
is December 31.
This report and the exhibits attached hereto contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements include, without limitation, statements as to
management's good faith expectations and beliefs, which are subject to inherent
uncertainties which are difficult to predict and may be beyond the ability of
the Company to control. Forward-looking statements are made based upon
management's expectations and belief concerning future developments and their
potential effect upon the Company. There can be no assurance that future
developments will be in accordance with management's expectations or that the
effect of future developments on the Company will be those anticipated by
management.
The words "believes," "expects," "intends," "plans," "anticipates," "hopes,"
"likely," "will," and similar expressions identify such forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from future results, performance or achievements expressed or implied
by such forward-looking statements.
These risks and uncertainties, many of which are beyond the Company's control,
include (i) the sufficiency of existing capital resources and our ability to
raise additional capital to fund cash requirements for future operations; and
(ii) general economic conditions. Although we believe the expectations reflected
in these forward-looking statements are reasonable, such expectations may prove
to be incorrect.
Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's view only as of the date of this report.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events, conditions or circumstances.
21
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 28 years.
Amexdrug Corporation, through its wholly-owned subsidiaries, BioRx
Pharmaceuticals, Inc., Allied Med, Inc., Dermagen, Inc. and Royal Health Care,
Inc. is a rapidly growing pharmaceutical and cosmeceutical company specializing
in the research and development, manufacturing and distribution of
pharmaceutical drugs, cosmetics and distribution of prescription and
over-the-counter drugs, private manufacturing and labeling and a quality control
laboratory. At Amexdrug Corporation, it is our anticipation to give our
clientele the opportunity to purchase cost effective products while maximizing
the return of investments to our shareholders.
Amexdrug Corporation distributes its products through its subsidiaries, BioRx
Pharmaceuticals, Inc., Allied Med, Inc., Dermagen, Inc. and Royal Health Care,
Inc. primarily to independent pharmacies and secondarily to small and
medium-sized pharmacy chains, alternative care facilities and other wholesalers
and retailers in the state of California.
BioRx Pharmaceuticals, Inc. is a proud member of the National Association of
Chain Drug Stores (NACDS). BioRx Pharmaceuticals, Inc. has developed numerous
unique innovative products in the industry under the names Sponix and Bactivex.
We plan to add three more skin care over the counter (OTC) and natural products
in 2010, which are in various stages of development. Our team of professionals
fully pledges the effectiveness of our distinct products.
At this time, we have certain distribution channels with suppliers and customers
whom we know and trust, such as CVS, Target, Amazon, and hundreds of independent
pharmacies. Of the estimated 100,000 retailers (drug stores and food mass), our
goal is to have 20,000 stores carry our products in 2010.
The accompanying financial information includes the operations of Allied Med,
Inc. and the operations of Amexdrug Corporation for all periods presented.
Results of operations for the years ended December 31, 2009 and 2008
Revenues
- --------
For the year ended December 31, 2009, Amexdrug reported sales of $9,766,972,
comprised of $9,356,884 of sales from the Company's pharmaceutical wholesale
distribution business of selling brand name and generic pharmaceutical products,
and over-the-counter (OTC) health and beauty products, and $410,088 of sales of
health and beauty products manufactured by the Company. This was $4,073,470 more
than the $5,693,502 of sales reported for the year ended December 31, 2008 which
was comprised primarily of $5,456,852 sales from the Company's pharmaceutical
wholesale distribution business of selling brand name generic pharmaceutical
products, and over-the-counter (OTC) health and beauty products and $236,650 of
sales of health and beauty products manufactured by the Company. The increase in
sales is primarily due to an increase in marketing efforts, as well as having an
increased number of products to sell.
22
Costs of Goods Sold
- -------------------
Cost of goods sold for the year ended December 31, 2009 was $9,045,163, an
increase of $3,806,169 from the $5,238,994 cost of goods sold for the year ended
December 31, 2008.
Gross Profit
- ------------
During the year ended December 31, 2009 gross profit increased by $267,301 to
$721,809 or 7.4% of sales from the $454,508 or 8.0% of sales recorded for the
year ended December 31, 2008. The Company attributes its decrease in gross
profit margin in 2009 due to increased sales of lower profit margin products in
2009.
Expenses
- --------
Total operating expenses for the year ended December 31, 2009 were $666,113, an
increase of $244,925 from the total operating expenses of $421,188 recorded for
the year ended December 31, 2008. Selling, general and administrative expense
was $534,544 for the year ended December 31, 2009, an increase of $170,342 from
the $364,201 recorded for the year ended December 31, 2008. This increase in
selling, general and administrative expense is primarily attributable to
increased commissions payable on the increased sales and also to an increase in
officer compensation. Research and development expense for the year ended
December 31, 2009 was $123,328, an increase of $78,752 from the $44,576 recorded
for the year ended December 31, 2008. The Company anticipates that research and
development expenses for 2010 may be similar to the amount incurred in 2009.
Net Income
- ----------
During the year ended December 31, 2009, Amexdrug experienced net income of
$18,346. This was $6,014 more than the $12,332 of net income recorded for the
year ended December 31, 2008.
Liquidity and capital resources - December 31, 2009
As of December 31, 2009, Amexdrug reported total current assets of $749,775,
comprised primarily of cash of $121,182, accounts receivable of $430,184 and
inventory of $157,810. Total assets as of December 31, 2009 were $798,415, which
included total current assets of $749,775, plus net property and equipment of
$17,531, other deposits of $12,158, goodwill of $17,765 and trademarks of
$1,186.
Amexdrug's liabilities as of December 31, 2009 consist of accounts payable of
$406,585, notes payable to a related party of $108,023, accrued liabilities of
$10,157, corporate income tax payable of $5,167 and business line of credit
balance of $204,881.
During the year ended December 31, 2009, Amexdrug used $62,746 cash in operating
activities compared to $193,706 cash used in operating activities in the year
ended December 31, 2008. The primary adjustments to reconcile net income to net
cash provided by operating activities during 2009 were as follows: an increase
in accounts receivable of $125,940, a decrease in accounts payable and accrued
liabilities of $28,362, a decrease in inventory of $53,728, depreciation expense
of $8,241, a decrease in prepaid expenses $7,900 and a decrease in allowance for
doubtful accounts of $10,153. Cash increased during the year ended December 31,
2009 by $24,792 compared to a decrease during 2008 of $121,159. Amexdrug had a
cash balance of $121,182 at December 31, 2009. Operations have primarily been
funded through an increase in the credit line balance. Management does not
anticipate that Amexdrug will need to seek additional financing during the next
twelve months.
23
Stock Repurchases
Between approximately June 2007 and August 3, 2009, Amexdrug repurchased a total
of 11,900 shares of its common stock at prices ranging from a low of $0.20 per
share to a high of $2.39 per share. These shares are held by Amexdrug as
treasury shares.
Inflation
In the opinion of management, inflation has not and will not have a material
effect on our operations in the immediate future. Management will continue to
monitor inflation and evaluate the possible future effects of inflation on our
business and operations.
Capital Expenditures
The Company expended $10,377 and $1,854 on capital expenditures during the years
ended December 31, 2009 and 2008, respectively. The Company has no current plans
for capital expenditures.
Critical Accounting Policies
In the notes to the audited consolidated financial statements for the year ended
December 31, 2009, included in this Form 10-K, the Company discusses those
accounting policies that are considered to be significant in determining the
results of operations and its financial position. The Company believes that the
accounting principles utilized by it conform to accounting principles generally
accepted in the United States of America.
The preparation of financial statements requires Company management to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. By their nature, these judgments are subject
to an inherent degree of uncertainty. On an on-going basis, the Company
evaluates estimates. The Company bases its estimates on historical experience
and other facts and circumstances that are believed to be reasonable, and the
results form the basis for making judgments about the carrying value of assets
and liabilities. The actual results may differ from these estimates under
different assumptions or conditions.
Recent Accounting Pronouncements
- --------------------------------
For a description of recent accounting pronouncements adopted by the Company see
the footnotes to the Company's consolidated financial statements.
- --------------------------------------------------------------------------------
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
A smaller reporting company is not required to provide the information specified
by this item.
24
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Amexdrug's consolidated audited balance sheets as of December 31, 2009 and 2008,
Amexdrug's consolidated audited statements of income, stockholders' equity, and
cash flows for the fiscal years ended December 31, 2009 and 2008 are included
hereafter.
AMEXDRUG CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of Independent Registered Public Accounting Firms...................26
Consolidated Balance Sheets -- December 31, 2009 and 2008...................27
Consolidated Statements of Income for the Years Ended December 31,
2009 and 2008.............................................................28
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2009 and 2008...............................................29
Consolidated Statements of Cash Flows for the Years Ended December 31,
2009 and 2008............................................................30
Notes to Consolidated Financial Statements..................................31
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
Board of Directors
Amexdrug Corporation
Beverly Hills, California
We have audited the accompanying balance sheets of Amexdrug Corporation as of
December 31, 2009 and 2008, and the related statements of income, stockholders
equity and cash flows for the years ended December 31, 2009 and 2008. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Amexdrug Corporation
as of December 31, 2009 and 2008, and the results of their operations and their
cash flows for the years ended December 31, 2009 and 2008, in conformity with
U.S. generally accepted accounting principles.
We were not engaged to examine management's assessment about the effectiveness
of Amexdrug Corporation's internal control over financial reporting as of
December 31, 2009 and, accordingly, we do not express an opinion thereon.
/s/ HJ Associates & Consultants, LLP
HJ Associates & Consultants, LLP
Salt Lake City, Utah
March 30, 2010
26
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2009 2008
------------ ------------
Assets
Current Assets
Cash and cash equivalents $ 121,182 $ 96,390
Investment 7,490 2,681
Accounts receivable, net of allowance of
$32,253 and 22,100, respectively 430,184 314,397
Inventory 157,810 211,538
Deferred tax asset 13,778 16,345
Other receivable 18,274 8,288
Advances officer 1,057 5,360
Prepaid insurance - 7,900
------------ ------------
Total Current Assets 749,775 662,899
------------ ------------
Property and Equipment, at cost
Office and computer equipment 193,257 182,880
Leasehold improvements 15,700 15,700
------------ ------------
208,957 198,580
Less accumulated depreciation (191,426) (183,350)
------------ ------------
Net Property and Equipment 17,531 15,230
------------ ------------
Other Assets
Other deposits 12,158 12,158
Intangibles
Customer base, net of accumulated
amortization of $18,259 - -
Trademark, net of accumulated amortization
of $464 and $340, respectively 1,186 1,351
Goodwill 17,765 17,765
------------ ------------
Total Other Assets 31,109 31,274
------------ ------------
Total Assets $ 798,415 $ 709,403
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 406,585 $ 430,818
Accrued liabilities 10,157 14,286
Corporate tax payable 5,167 9,270
Notes payable related parties 108,023 109,202
Business lines 204,881 91,287
------------ ------------
Total Current Liabilities 734,813 654,863
------------ ------------
Shareholders' Equity
Common stock, $0.0001 par value;
50,000,000 authorized common shares
8,470,481 shares issued and outstanding 8,471 8,471
Additional paid in capital 83,345 83,345
Treasury stock (9,284) -
Retained earnings/(accumulated deficit) (18,930) (37,276)
------------ ------------
Total Shareholders' Equity 63,602 54,540
------------ ------------
Total Liabilities and Shareholders' Equity $ 798,415 $ 709,403
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
27
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
December 31, December 31,
2009 2008
------------ ------------
Sales $ 9,766,972 $ 5,693,502
Cost of Goods Sold 9,045,163 5,238,994
------------ ------------
Gross Profit 721,809 454,508
------------ ------------
Operating Expenses
Selling, general and administrative expense 534,544 364,201
Depreciation and amortization expense 8,241 12,411
Research and development 123,328 44,576
------------ ------------
Total Operating Expenses 666,113 421,188
------------ ------------
Income before Other Income/(Expenses) 55,696 33,320
------------ ------------
Other Income/(Expenses)
Interest and other income - 266
Penalty (512) (403)
Unrealized gain/(loss) (4,710) (769)
Interest expense (23,268) (15,322)
------------ ------------
Total Other Income/(Expenses) (28,490) (16,228)
------------ ------------
Income before Provision for Income Taxes 27,206 17,092
Income tax benefit/(expense) (8,860) (4,760)
------------ ------------
Net Income $ 18,346 $ 12,332
============ ============
BASIC AND DILUTED INCOME PER SHARE $ 0.00 $ 0.00
============ ============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 8,470,481 8,470,481
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
28
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
December 31, December 31,
2009 2008
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,346 $ 12,332
Adjustment to reconcile net income to net cash
used in operating activities
Depreciation and amortization 8,241 12,411
Allowance for doubtful accounts 10,153 22,100
Unrealized (gain)/loss on investment 4,710 769
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts receivable (125,940) (125,940)
Inventory 53,728 (16,996)
Prepaid expenses 7,900 (7,900)
Other receivable (9,986) -
Deferred tax asset 2,567 (9,345)
Increase (Decrease) in:
Accounts payable and accrued liabilities (28,362) (90,407)
Corporate income tax payable (4,103) 9,270
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (62,746) (193,706)
------------ ------------
Net CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of investments (9,519) (3,450)
Purchase of fixed assets (10,377) (1,854)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (19,896) (5,304)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to officer 4,303 (5,360)
Payments on related party loans (1,179) (13,140)
Purchase of treasury stock (9,284) -
Proceeds from credit line 113,594 36,351
Proceeds from related parties - 60,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 107,434 77,851
------------ ------------
NET INCREASE IN CASH 24,792 (121,159)
CASH, BEGINNING OF PERIOD 96,390 217,549
------------ ------------
CASH, END OF PERIOD $ 121,182 $ 96,390
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 6,457 $ 8,502
============ ============
Income taxes $ 1,600 $ 8,221
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
29
AMEXDRUG CORPORATION AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(Accumulated
Additional Deficit)
Common stock Paid-in Treasury Retained Total
Shares Amount Capital Stock Earnings Equity
--------- ------- --------- -------- ------------ --------
Balance at
December 31, 2007 8,470,481 $ 8,471 $ 83,345 $ - $ (49,608) $ 42,208
Net income for
the year ended
December 31, 2008 - - - - 12,332 12,332
--------- ------- --------- -------- ------------ --------
Balance,
December 31, 2008 8,470,481 8,471 83,345 - (37,276) 54,540
Treasury stock - - - (9,284) - (9,284)
Net income for
the year ended
December 31, 2009 - - - - 18,346 18,346
--------- ------- --------- -------- ------------ --------
Balance,
December 31, 2009 8,470,481 $ 8,471 $ 83,345 $ (9,284) $ (18,930) $ 63,602
========= ======= ======== ======== ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
30
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
1. ORGANIZATION AND LINE OF BUSINESS
Amexdrug's wholly owned subsidiaries include BioRx Pharmaceuticals,
Allied Med, Inc. and Dermagen, Inc.
Allied Med, Inc., was formed in October 1997 and is engaged in the
pharmaceutical wholesale business of selling brand and generic
pharmaceuticals products, over-the-counter drug and non-drug products and
health and beauty products to independent and chain pharmacies,
alternative care facilities and other wholesalers.
Dermagen, Inc. is a manufacturing company specializing in the
manufacturing and distribution of certain pharmaceuticals, medical
devices, and health and beauty products. Dermagen has a US Federal Drug
Administration (FDA) registered and state FDA approved manufacturing
facility license to develop skin and novel health and beauty products for
niche markets.
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. Currently, BioRx Pharmaceuticals, Inc. has assets,
liabilities, and operations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Amexdrug Corporation and its wholly-owned subsidiaries, Allied Med, Inc.,
Dermagen, Inc. and BioRx Pharmaceuticals. Inter-company accounts and
transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Amexdrug Corporation is
presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity.
These accounting policies conform to accounting principles generally
accepted in the United States of America and have been consistently
applied in the preparation of the financial statements.
Revenue Recognition
-------------------
The Company generates revenues from the manufacture and 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 the customer. An allowance for sales
returns is provided for products sold on a cash-on-delivery basis that are
not accepted or paid for by the customer.
Cash and Cash Equivalent
------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Investments
-----------
Certificate of Deposits with banking institutions are short-term
investments with initial maturities of more than 90 days. The carrying
amount of these investments is a reasonable estimate of fair value due to
their short-term nature.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements. Significant estimates made in preparing these financial
statements include the estimate of useful lives of property and equipment,
the deferred tax valuation allowance, and the fair value of stock options.
Actual results could differ from those estimates.
31
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
----------------------
Property and equipment are stated at cost, and are depreciated using the
modified accelerated cost recovery system (macrs) method over its
estimated useful lives:
Machinery & Office equipment 3-10 Years
Leasehold improvements 2-5 Years
Depreciation expense was $8,241 and $12,411 for the years ended December
31, 2009 and 2008, respectively
Fair Value of Financial Instruments
-----------------------------------
Fair Value of Financial Instruments rules requires disclosure of the fair
value information, whether or not recognized in the balance sheet, where
it is practicable to estimate that value. As of December 31, 2009 and
2008, the amounts reported for cash, accounts receivable, accounts
payable, accrued interest and other expenses, and notes payable
approximate the fair value because of their short maturities.
Basic Income per Share Calculations
-----------------------------------
Basic income per share is computed by dividing net income by the
weighted-average number of common shares outstanding. As of December 31,
2009 and 2008, the Company did not have any potentially issuable common
shares outstanding; accordingly, diluted income per share is not
applicable to the Company and is not presented.
Income Taxes
------------
The Company uses the liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry-forwards. The measurement of deferred
tax assets and liabilities is based on provisions of applicable tax law.
The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance based on the amount of tax benefits that, based on
available evidence, is not expected to be realized.
Research and Development
------------------------
Research and development costs are expensed as incurred. Total research
and development costs were $123,328 and $44,576 for the years ended
December 31, 2009 and 2008, respectively.
Advertising Costs
-----------------
The Company expenses the cost of advertising and promotional materials
when incurred. Total advertising costs were $16,284 and $1,350 for the
years ended December 31, 2009 and 2008, respectively.
Stock based Compensation
------------------------
Share-based Payment applies to transactions in which an entity exchanges
its equity instruments for goods or services and also applies to
liabilities an entity may incur for goods or services that are to follow a
fair value of those equity instruments. Under GAAP, we will be required to
follow a fair value approach using an option-pricing model, such as the
Black Scholes option valuation model, at the date of a stock option grant.
The deferred compensation calculated under the fair value method would
then be amortized over the respective vesting period of the stock option.
The adoption of this accounting pronouncement has not had a material
impact on our results of operations.
32
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Credit Risk
----------------------------
The Company's historical revenues and receivables have been derived solely
from the pharmaceutical industry. Although the Company primarily sells
products on a cash-on-delivery basis, the Company also sells products to
certain customers under credit terms. The Company performs ongoing credit
evaluations of its customers' financial conditions and usually requires a
delayed check depository from its customers at the date products are
shipped. The Company maintains an allowance for accounts receivable that
may become uncollectible.
During the year ended December 31, 2009, purchases from two vendors
accounted for 82% and 14% of total purchases, respectively. Accounts
payable to these vendors accounted for 85% and 14% of the total accounts
payable balance as of December 31, 2009, respectively. During the year
ended December 31, 2008, purchases from those two vendors accounted 75%
and 21% of total purchases, respectively. Accounts payable to these
vendors accounted for 78% and 18% of the total accounts payable balance as
of December 31, 2008. The loss of these vendors could have a potential
negative effect upon the Company's future operations.
Accounts Receivable
-------------------
An allowance for uncollectible accounts receivable is established by
charges to operations for amounts required to maintain an adequate
allowance, in management's judgment, to cover anticipated losses from
customer accounts and sales returns. Such accounts are charged to the
allowance when collection appears doubtful. Any subsequent recoveries are
credited to the allowance account.
Inventory
---------
Inventory includes purchased products for resale and raw materials and
supplies necessary to manufacture pharmaceuticals, medical devices, and
health and beauty products and is stated at the lower of cost (using the
first-in, first-out method) or market value. Provisions, when required,
are made to reduce excess and expired inventory to its estimated net
realizable value. Although competitive pressures and pharmaceutical
advancements expose the Company to the risk that estimates of the net
realizable could change in the near term, the Company's agreements with
most vendors provide for the right of return of outdated or expired
inventory. The Company is exposed to other ownership related risks
associated with inventory. Inventory consists of the following:
2009 2008
------------ -------------
Raw materials $ 43,644 $ 53,943
Finished goods 114,166 157,595
------------ -------------
Total inventory $ 157,810 $ 211,538
============ =============
Intangible Assets
-----------------
The estimated fair value of Dermagen's customer base was recorded as an
intangible asset at the date of acquisition and was amortized over the
estimated useful life of the customer base, which was three years. As of
December 31, 2009 and 2008, the customer base was fully amortized,
accordingly, there was no amortization expense in either year.
Trademarks are recorded at cost and are amortized over their estimated
useful life, which is ten years. An impairment charge is recognized if the
carrying amount is not recoverable and the carrying amount exceeds the
fair value of the intangible assets as determined by projected discounted
cash flows.
33
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill represents the excess of the purchase price of Dermagen,Inc. over
the fair value of its net assets at the date of acquisition. Goodwill is
not amortized, but is tested for impairment quarterly or when a triggering
event occurs. The testing for impairment requires the determination of the
fair value of the asset or entity to which the goodwill relates (the
reporting unit). The fair value of a reporting unit is determined based
upon a weighting of the quoted market price of the Company's common stock
and present value techniques based upon estimated future cash flows of the
reporting unit, considering future revenues, operating costs, the
risk-adjusted discount rate and other factors. Impairment is indicated if
the fair value of the reporting unit is allocated to the assets and
liabilities of that unit, with the excess of the fair value of the
reporting unit over the amounts assigned to its assets and liabilities
assigned to the fair value of goodwill. The amount of impairment of
goodwill is measured by the excess of the goodwill's carrying value over
its fair value. As of December 31, 2009 and 2008, the Company's goodwill
was not deemed to be impaired.
The Company reviews its long-lived assets for impairment when events or
changes in circumstances indicate that their carrying value may not be
recoverable. The Company evaluates, at each balance sheet date, whether
events and circumstances have occurred which indicate possible impairment.
The Company uses an estimate of future undiscounted net cash flows from
the related asset or group of assets over their remaining life in
measuring whether the assets are recoverable. As of December 31, 2009,
based on the analysis of estimated undiscounted future net cash flows, the
Company did not consider any of its long-lived assets to be impaired.
3. INTANGIBLE ASSETS
Intangible assets that have finite useful lives continue to be amortized
over their useful lives, and are reviewed for impairment when warranted by
economic condition.
Useful Lives 2009 2008
------------ ------------ -------------
Trademarks $ 1,650 $ 1,650
Less accumulated amortization 10 years (464) (299)
------------ -------------
$ 1,186 $ 1,351
============ =============
Customer base $ 18,259 $ 18,259
Less accumulated amortization 3 years (18,259) (18,259)
------------ -------------
$ - $ -
============ =============
In aggregate, the Company recognized amortization expense of $165 and
$4,726 for the years ended December 31, 2009 and 2008, respectively.
4. RENTAL LEASES
The Company leases certain of its operating facilities under
non-cancellable operating leases that expire during 2010. Rent expense is
recognized on a straight-line basis over the term of the leases. Rent
expense relating to its' operating facility for the years ended December
31, 2009 and 2008 was $67,684 and $48,403, respectively.
As of December 31, 2009 and 2008, the Company had refundable deposits
relating to these operating leases of $11,058. Additionally, the Company
leases its executive offices on a month-to-month basis for $1,168 per
month.
34
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
5. INCOME TAXES
The Company files income tax returns in the U.S. Federal jurisdiction, and
the state of California. With few exceptions, the Company is no longer
subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 2007.
Accounting for Uncertainty in Income Taxes was adopted by the Company on
January 1, 2007. The Company's policy is to recognize interest accrued
related to unrecognized tax benefits in interest expense and penalties in
operating expenses. During the period ended December 31, 2009 and 2008,
the Company did not recognize interest and penalties.
6. DEFERRED TAX BENEFIT
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carry-forwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment. The provision (benefit) for
income taxes for the years ended December 31, 2009 and 2008 consist of the
following:
2009 2008
------------ -------------
Federal:
Current $ 5,085 $ 5,630
Deferred (5,200) (6,000)
State:
Current 2,950 3,640
Deferred (2,800) (3,345)
------------ -------------
$ 35 $ (75)
============ =============
Net deferred tax assets consist of the following components as of December
31, 2009 and 2008:
2009 2008
------------ -------------
Deferred Tax Assets:
Depreciation $ 6,078 $ 9,390
Related Party Accruals - 1,500
Allowance for Doubtful Accounts 7,700 5,455
Deferred Tax Liabilities: - -
------------ -------------
Net Deferred Tax Asset $ 13,778 $ 16,345
============ =============
35
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
6. DEFERRED TAX BENEFIT (Continued)
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal and state income tax rate of 23.84% to pretax
income from continuing operations for the years ended December 31, 2009
and 2008 due to the following:
2009 2008
------------ -------------
Book income $ 6,486 $ 4,295
State income taxes (703) (900)
Depreciation (638) (1,480)
M & E 720 450
Penalties 122 100
Related party accrual (1,451) 1,140
Unrealized loss 1,130 200
Allowance for doubtful accounts 2,420 5,455
Valuation Allowance - -
------------ -------------
Income tax expense $ 8,086 $ 9,260
============ =============
7. RELATED PARTY TRANSACTIONS
The Company borrowed $109,202 from a shareholder to facilitate the
purchase of Dermagen and to cover operating expenses. The balance of
$108,023 is payable on demand and carries an annual interest rate of 8%,
payable every 6 months. The interest paid as of December 31, 2009 and 2008
was $8,736 and $6820 respectively. This liability is unsecured.
8. BUSINESS LINES
The Company received a line of credit from Wells Fargo Bank for $70,000,
which as of December 31, 2009 and 2008 has a balance owing of $54,279 and
$51,287 respectively. The interest rate is prime plus 4% payable every
month. The line of credit is secured by assets of the Company.
The Company received a promissory note on June 23, 2008 from National Bank
of California for $150,000, which as of December 31, 2009 and 2008 has a
balance owing of $150,602 and $40,000 respectively. The interest rate is
2.5% over the index payable every month. The note matures in June 2010.
The promissory note is secured by assets of the Company.
9. BUSINESS SEGMENT INFORMATION
Beginning in 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 and health and beauty products. Health and
Beauty Products consist of the manufacture and distribution of primarily
health and beauty products.
The following tables describe information regarding the operations and
assets of these reportable business segments:
36
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
9. BUSINESS SEGMENT INFORMATION (Continued)
Health and
Beauty
Distributions Products Total
------------- ------------ -------------
For the year ended December 31, 2009
Sales to external customers $ 9,356,884 $ 410,088 $ 9,766,972
Depreciation and amortization 1,420 6,821 8,241
Segment income (loss) before taxes 403,877 (425,815) (21,938)
Segment assets 523,364 212,634 735,998
For the year ended December 31, 2008
Sales to external customers $ 5,456,852 $ 236,650 $ 5,693,502
Depreciation and amortization 5,590 6,821 12,411
Segment income (loss) before taxes 126,395 (109,303) 17,092
Segment assets 357,321 352,122 709,443
10. SUBSEQUENT EVENTS
The Company has evaluated events subsequent to December 31, 2009 and has
concluded that there are none to report.
37
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
Not Applicable.
- --------------------------------------------------------------------------------
ITEM 9A. CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
Under the supervision and with the participation of management, Jack Amin,
acting as our chief executive officer and chief financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 ("Exchange Act"), as of December 31, 2009. Based on this
evaluation, our chief executive officer and chief financial officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective and adequately designed to ensure that
the information required to be disclosed by us in the reports we submit under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the applicable rules and forms and that such information
was accumulated and communicated to our chief executive officer and chief
financial officer, in a manner that allowed for timely decisions regarding
required disclosure.
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.
Management's Annual Report on Internal Control Over Financial Reporting
- -----------------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. Our internal control system was designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes, in accordance
with generally accepted accounting principles. Because of inherent limitations,
a system of internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable, not absolute, assurance of achieving their control
objectives. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate due to
change in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
38
Our management, including our principal executive officer and principal
accounting officer, conducted an evaluation of the effectiveness of our internal
control over financial reporting using the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control - Integrated Framework. Based upon this evaluation our management,
including the Chief Executive Officer and Principal Financial Officer, has
concluded that our internal controls over financial reporting were effective as
of December 31, 2009.
During the quarter ended December 31, 2009, 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.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the SEC that
permit the Company to provide only the management's report in this annual
report.
- --------------------------------------------------------------------------------
ITEM 9B. OTHER INFORMATION
- --------------------------------------------------------------------------------
None.
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
- --------------------------------------------------------------------------------
Identification of directors and executive officers
The following table as of March 25, 2010, includes the name, age, and position
of each executive officer and director of Amexdrug and the term of office of
each director.
Name Age Position Director and/or Officer Since
- ---- --- -------- -----------------------------
Jack Amin 51 President, Secretary, April 2000
Treasurer and Director
Rodney S. Barron, 57 Director December 2001
M.D.
Behrooz Meimand 61 Director December 2001
39
Each director of the Company serves for a term of one year and until his
successor is elected at the Company's annual shareholders' meeting and is
qualified, subject to removal by the Company's shareholders. Each officer
serves, at the pleasure of the board of directors, for a term of one year and
until his successor is elected at the annual meeting of the board of directors
and is qualified.
Currently, there is no arrangement, agreement or understanding between
management and non-management stockholders under which non-management
stockholders may directly or indirectly participate in or influence the
management of our affairs. Present management openly accepts and appreciates any
input or suggestions from stockholders. However, the board is elected by the
stockholders and the stockholders have the ultimate say in who represents them
on the board. There are no agreements or understandings for any officer or
director to resign at the request of another person and none of the current
offers or directors are acting on behalf of, or will act at the direction of any
other person.
The business experience for at least the last five years of each of the
Company's executive officers and directors is as follows.
Jack Amin has served as the President, Secretary, Treasurer and as a director of
Amexdrug since April 2000. He holds a Bachelor of Science in Electronic
Engineering from Western State College of Engineering of LA, California in 1982.
Since 1980 Mr. Amin has been engaged in various capacities, including sales and
management, within the pharmaceutical industry. Mr. Amin has served as the
President, Chief Executive Officer and director of Amexdrug's wholly-owned
subsidiary, Allied Med, Inc., a company which he founded in 1997.
Rodney S. Barron, M.D., has served as a director of Amexdrug since December
2001. Dr. Barron obtained his medical degree from New York Medical College in
1978. He then performed a residency in general surgery from 1978 to 1980, and a
residency in urology from 1980 to 1983. Dr. Barron has been involved in the
private practice of medicine in Los Angeles, California from 1983 through the
present time.
Behrooz Meimand has served as a director of Amexdrug since December 2001. Mr.
Meimand obtained a master's degree in insurance from the National University of
Iran in 1970. He has had 30 years of experience in the insurance industry. Mr.
Meimand has been the president of Behrooz Meimand Insurance Services, Inc. for a
period of time exceeding the past 5 years. Currently Mr. Meimand is also a
director of Magbid Foundation and Nessah Education & Culture Center.
Significant employees
Amexdrug and its subsidiaries have no present employees who are expected to make
a significant contribution to Amexdrug's business other than Amexdrug's current
officers and directors. It is expected that current members of management will
be the only persons whose activities will be material to Amexdrug's operations.
Family relationships
There are no family relationships between any directors or executive officers of
Amexdrug and/or the officers, directors or managers of its subsidiary companies,
BioRx Pharmaceuticals, Inc., Allied Med, Inc., Dermagen, Inc. and Royal Health
Care, Inc., either by blood or by marriage.
40
Involvement in certain legal proceedings
During the past five years, no present or former director, person nominated to
become a director, executive officer, promoter or control person of Amexdrug:
(1) was a general partner or executive officer of any business which
filed a petition in bankruptcy or against which any bankruptcy petition
was filed, either at the time of the bankruptcy or two years prior to that
time; or
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses); or
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from or otherwise limiting his
involvement in the following activities:
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated by
the Commodity Futures Commission, or an associated person of any of
the foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any
violation of Federal or State securities laws or Federal commodities
laws; or
(4) was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or State
authority barring, suspending or otherwise limiting for more than 60 days
the right of such person to engage in any activity described in paragraph
(3)(i) above, or to be associated with persons engaged in any such
activity; or
(5) was found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission to have violated any Federal
or State securities law, and the judgment in such civil action or funding
by the Commission has not been subsequently reversed, suspended, or
vacated; or
(6) was found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any
Federal commodities law, and the judgment in such civil action or finding
by the Commodity Futures Trading Commission has not been subsequently
reversed, suspended or vacated.
41
Section 16(a) beneficial ownership reporting compliance
Based solely upon a review of Forms 3 and 4 furnished to the Company under Rule
16a-3(d) during its most recent fiscal year, the Company knows of no person who
was a director, officer, beneficial owner of more than ten percent of any class
of equity securities of the Company registered pursuant to Section 12
("Reporting Person") that failed to file on a timely basis any reports required
to be furnished pursuant to Section 16(a) during the most recent fiscal year,
except for the following:
1. Jack Amin filed a Form 4 report on November 19, 2009 to report the following
transactions: (a) a purchase of 500 shares which occurred on June 18, 2009; (b)
a purchase of 500 shares which occurred on June 19, 2009; (c) a purchase of
1,500 shares which occurred on June 23, 2009; (d) a purchase of 500 shares which
occurred on June 26, 2009; (e) a purchase of 100 shares which occurred on July
6, 2009; (f) a purchase of 1,000 shares which occurred on August 7, 2009; (g) a
purchase of 2 shares which occurred on September 8, 2009; and (h) a purchase of
100 shares which occurred on September 16,2009. A Form 4 report should have been
filed by Mr. Amin within two business days of each of the eight transactions
described above.
Code of Ethics
We have recently adopted a Code of Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions. A copy of the Code of
Ethics is incorporated by reference to this Annual Report.
Audit Committee and Financial Expert
At the present time, our Board of Directors serves as our audit committee. We do
not presently have a financial expert on our Board of Directors. Two of our
directors, Rodney S. Barron and Behrooz Meimand, are independent.
Nominating Committee
The Company does not have a standing nominating committee or a committee
performing similar functions. Due to the Company's size, it is difficult to
attract individuals who would be willing to accept membership on the Company's
Board of Directors. Therefore, the full Board of Directors would participate in
nominating candidates to the Board of Directors. The Company did not have an
annual meeting of shareholders in the past fiscal year.
Other Committees
We presently do not have a compensation committee, executive committee of our
Board of Directors, stock plan committee or any other committees.
- --------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Cash compensation
The following table shows compensation earned during fiscal 2009 and 2008 by the
Chief Executive Officer and by any other executive officers whose compensation
during one of the two fiscal years totaled $100,000 or more The information in
the table includes salaries, bonuses, stock options granted, restricted stock
awards granted and other miscellaneous compensation. We presently have no long
term compensation benefits.
42
SUMMARY COMPENSATION TABLE
Name and
Principal Fiscal Salary Bonus Stock All Other
Position Year ($) ($) Awards Compensation Total
- --------------------------------------------------------------------------------
Jack Amin 12/31/09 $ 102,250 0 0 0 $ 102,250
President/ 12/31/08 $ 29,600 0 0 0 $ 29,600
Director
Columns have been omitted from the Summary Compensation Table above for option
awards, non-equity incentive plan compensation and changes in pension value and
nonqualified deferred compensation earnings since there were none.
Except as described above, no cash compensation, deferred compensation or
long-term incentive plan awards were issued or granted to Amexdrug's management
during the fiscal years ended December 31, 2009 and 2008. Except as described
above, no other officers or directors were paid any salaries or compensation
during the years ended December 31, 2009 or 2008. Further, no member of
Amexdrug's management has been granted any option or stock appreciation rights.
Accordingly, no tables relating to such items have been included within this
Item 11.
There are no present plans whereby Amexdrug will issue any of its securities to
management, promoters, their affiliates or associates in consideration of
services rendered or otherwise, except as described herein.
Compensation of directors
Amexdrug has no arrangement for compensating its directors for their services as
directors or for serving on any committees. However, directors may be
compensated for services which they render as officers and/or as employees of
Amexdrug.
Employment contracts and termination of employment and change-in-control
arrangements
There are no employment contracts, compensatory plans or arrangements, including
payments to be received from Amexdrug with respect to any executive officer of
Amexdrug which would in any way result in payments to any such person because of
his or her resignation, retirement or other termination of employment with
Amexdrug or its subsidiaries, any change in control of Amexdrug or a change in
the person's responsibilities following a change in control of Amexdrug.
Nor are there any agreements or understandings for any director or executive
officer to resign at the request of another person. None of Amexdrug's directors
or executive officers is acting on behalf of or will act at the direction of any
other person.
Amexdrug intends to enter into an employment agreement with Jack Amin in the
near future that may provide for a salary of $150,000 per year retroactive to
January 1, 2010, and possible bonuses as the board of directors may determine
are appropriate. In the event Amexdrug is unable to pay the full $150,000 per
year annual salary to Mr. Amin, he has indicated that he may accept a portion of
the salary in the form of Amexdrug common stock.
43
Compensation pursuant to plans; pension table
There were no stock awards, restricted stock awards, stock options, stock
appreciation rights, long-term incentive plan compensation or similar rights
granted to any of our officers or directors. None of our officers or directors
presently holds directly any stock options or stock purchase rights. We have no
retirement, pension, profit sharing, or other plan covering any of our officers
and directors.
We have adopted no formal stock option plans for our officers, directors and/or
employees. We reserve the right to adopt one or more stock options plans in the
future. Presently we have no plans to issue additional shares of our common or
preferred stock or options to acquire the same to our officers, directors or
their affiliates or associates.
Other compensation
None.
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee, and the function of the compensation
committee is handled by the Board of Directors. Jack Amin also serves as an
officer of the Company.
Compensation Committee Report
The Company has no compensation Committee, and the function of the compensation
committee is handled by the Board of Directors. Jack Amin also serves as an
officer of the Company. The Board of Directors approved the compensation paid to
Jack Amin in 2009.
- --------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
Security ownership of certain beneficial owners
The following table sets forth the share holdings of those persons who are known
to Amexdrug to be the beneficial owners of more than five percent of Amexdrug's
common stock as of March 25, 2010. Each of these persons has sole investment and
sole voting power over the shares indicated.
Number Percent
Name and Address of Shares Beneficially Owned of Class
- ---------------- ---------------------------- --------
Jack Amin 7,759,202(1) 91.7%
8909 West Olympic Blvd.
Suite 208
Beverly Hills, CA 90211
(1) Mr. Amin disclaims beneficial ownership of 421,083 shares of common
stock acquired by his wife, Nora Amin, during 2005 that are not
included in the foregoing amount.
44
Security ownership of management
The following table sets forth the share holdings of Amexdrug's directors and
executive officers as of March 25, 2010. Each of these persons has sole
investment and sole voting power over the shares indicated.
Number Percent
Name and Address of Shares Beneficially Owned of Class
- ---------------- ---------------------------- --------
Jack Amin 7,759,202(1) 91.7%
Rodney Barron, M.D. 0 0.0%
Behrooz Meimand 0 0.0%
All directors and executive
officers as a group (3) 7,759,202 91.7%
(1) Mr. Amin disclaims beneficial ownership of 421,083 shares of common
stock acquired by his wife, Nora Amin, during 2005 that are not
included in the foregoing amount.
All common shares held by the officers, directors and principal shareholders
listed above are "restricted or control securities" and are subject to
limitations on resale. The shares may be sold in compliance with the
requirements of Rule 144, after a minimum six months holding period has been
met.
Rule 13d-3 generally provides that beneficial owners of securities include any
person who directly or indirectly has or shares, voting power and/or investment
power with respect to such securities; and any person who has the right to
acquire beneficial ownership of such security within 60 days.
Any securities not outstanding which are subject to options, warrants or
conversion privileges exercisable within 60 days are treated as outstanding for
the purpose of computing the percentage of outstanding securities owned by that
person. But such securities are not treated as outstanding for the purpose of
computing the percentage of the class owned by any other person.
Changes in control
There are no present arrangements or pledges of Amexdrug's securities, known to
management, which may result in a change in control of Amexdrug.
Securities Authorized for Issuance under Equity Compensation Plans
The Company has no equity compensation plans that have been approved by the
Company's security holders or the Board of Directors. There presently are no
securities authorized for issuance under any equity compensation plans. There
are no outstanding options, warrants or rights to acquire securities of the
Company.
- --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
- --------------------------------------------------------------------------------
Transactions with management and others
45
Except as indicated below, and for the periods indicated, there were no material
transactions, or series of similar transactions, during the last two fiscal
years ended December 31, 2009, or since December 31, 2009, or any currently
proposed transactions, or series of similar transactions, to which the Company
or any of its subsidiaries was or is to be party, in which the amount involved
exceeds the lesser of $120,000 or one percent of the average of the Company's
total assets at year-end for the last two completed fiscal years, in which any
related person (as defined in Item 404 of Regulation S-K) had a direct or
indirect material interest, other than the following:
1. Amexdrug anticipates that it may enter into an employment agreement with Jack
Amin in the near future. It is expected that the employment agreement will be
retroactive to January 1, 2010, and that it will provide for an annual salary of
$150,000 and possible bonuses as the board of directors may determine are
appropriate. The employment agreement may give Mr. Amin the option to take a
portion of the salary in shares of the Company's common stock.
2. Amexdrug borrowed $109,202 from the wife of our CEO to facilitate the
purchase of Dermagen and to cover operating expenses. The balance of $108,023 as
of December 31, 2009 is payable on demand and carries an annual interest rate of
8%, payable every six months. The interest paid as of December 31, 2009 and 2008
was $8,736 and $6,820, respectively.
No other related party transaction is presently proposed.
Parents of the company
Amexdrug has no parents, except to the extent that Mr. Amin may be deemed to be
a parent by virtue of his large percentage stockholdings of the Company's common
stock. See the caption "Security ownership of certain beneficial owners and
management" in item 12 of this report for a description of Mr. Amin's stock
ownership.
Transactions with promoters
The Company was organized more than five years ago therefore transactions
between the Company and its promoters or founders are not deemed to be material.
Policies and Procedures for Review, Approval or Ratification of Transactions
with Related Persons
Our board of directors reviews, and must approve any related person transactions
before such transactions are engaged in by the Company. A related person means
any person who is, or at any time since the beginning of our last fiscal year
was, a director or executive officer of the Company or a nominee to become a
director of the Company; any person who is know to be the beneficial owner of
more than 5% of any class of our voting securities; any immediate family member
of any of the foregoing persons, which means any child, stepchild, parent,
stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law of the director, executive
officer, nominee or more than 5% beneficial owner, and any person (other than a
tenant or employee) sharing the household of such director, executive officer,
nominee or more than 5% beneficial owners; and any firm, corporation, or other
equity in which any of the foregoing persons is employed or is a general partner
or principal or is a similar position or in which such person has a 5% or
greater beneficial ownership interest. Our board of directors reviews these
related person transactions and considers all of the relevant facts and
46
circumstances available to the board of directors, including (if applicable) but
not limited to; the benefits to us; the availability of other sources of
comparable products or services; the terms of the transaction; and the terms
available to unrelated third parties or to employees generally. The board of
directors may approve only those related person transactions that are in, or are
not inconsistent with the best interests of us and of our stockholders, as the
board of directors determines in good faith. At the beginning of each fiscal
year, the board of directors will review any previously approved or ratified
related person transactions that remain ongoing and have a remaining term of
more than six months. The board of directors will consider all of the relevant
facts and circumstances and will determine if it is in the best interests of us
and our stockholders to continue, modify or terminate these related person
transactions.
Independence of Directors
The Company has, but is not required to have, a majority of independent
directors. Should the Company decide to list on a securities exchange, we will
be required to adhere to the independence requirements of that exchange.
- --------------------------------------------------------------------------------
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
- --------------------------------------------------------------------------------
We do not have an audit committee and as a result our entire board of directors
performs the duties of an audit committee. Our board of directors will approve
in advance the scope and cost of the engagement of an auditor before the auditor
renders audit and non-audit services. As a result, we do not rely on
pre-approval policies and procedures.
Audit Fees
For the fiscal years ended December 31, 2009 and 2008, our principal accountant
billed $19,400 and $21,855, respectively, for the audit of our annual financial
statements and review of financial statements included in our Form 10-Q filings.
Audit-Related Fees
There were no other fees billed for services reasonably related to the
performance of the audit or review of our financial statements outside of those
fees disclosed above under "Audit Fees" for the fiscal years ended December 31,
2009 and 2008.
Tax Fees
For the fiscal years ended December 31, 2009 and 2008, our principal accountant
billed us $2,373 and $4,616, respectively, for services for tax compliance, tax
advice, and tax planning work.
All Other Fees
There were no other fees billed by our principal accountants other than those
disclosed above for fiscal years ended December 31, 2009 and 2008.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
47
Our Board of Directors serves as our audit committee. The audit committee's
policy is to pre-approve all audit and permissible non-audit services provided
by the independent auditors. These services may include audit services,
audit-related services, tax services, and other services. Pre-approval is
generally provided for up to one year, and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a
specific budget. The independent auditors and management are required to
periodically report to the audit committee regarding the extent of services
provided by the independent auditors in accordance with this pre-approval and
the fees for the services performed to date. The audit committee may also
pre-approve particular services on a case-by-case basis.
- --------------------------------------------------------------------------------
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
- --------------------------------------------------------------------------------
1. Financial Statements:
Index to Financial Statements
Amexdrug Corporation
Report of Independent Registered Public Accounting Firm 26
Balance Sheets at December 31, 2009 and December 31, 2008 27
Statements of Income for the years ended December 31, 2009 and 2008 28
Statements of Changes in Stockholders Equity for the years ended
December 31, 2009, and 2008 29
Statements of Cash Flows for the years ended December 31, 2009 and
2008 30
Notes to Financial Statements 31
2. Financial Statement Schedule(s):
No financial statement schedules are filed herewith because (i) such schedules
are not required or (ii) the information required has been presented in the
aforementioned financial statements.
3. Exhibits
The following exhibits are filed as part of this report.
Exhibit Exhibit
Number Description Location
- ------- ----------- --------
2.1 Agreement and Plan of Merger *
(to change domicile from California)
2.2 Agreement and Plan of Reorganization **
3.1 Articles of Incorporation ***
3.2 By-Laws ***
10.1 Lease Agreement between Fullerton Business ******
Center, Lessor, and Allied Med, Inc., Lessee,
dated September 23, 2005 (Unit K)
10.2 Lease Agreement between Fullerton Business ******
Center, Lessor, and Allied Med, Inc., Lessee,
dated September 23, 2005 (Units I & J)
48
10.3 Third Amendment to Lease Agreement between *****
Fullerton Business Center, Lessor, and Allied Med,
Inc., Lessee, dated November 5, 2008 (Units I and J)
10.4 Promissory Note with National Bank of California *****
dated June 23, 2008
10.5 Change in Terms Agreement with National Bank of *****
California dated June 9, 2009
10.6 First Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc.,
Lessee, dated September 11, 2006 (Unit K)
10.7 First Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc.,
Lessee, dated September 11, 2006 (Units I & J)
10.8 Second Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc.,
Lessee, dated October 25, 2007 (Unit K)
10.9 Second Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc., Lessee,
dated October 25, 2007 (Units I & J)
10.10 Third Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc.,
Lessee, dated November 5, 2008 (Unit K)
10.11 Change in Terms Agreement with National Bank of ******
California dated March 3, 2009
10.12 Subordination Agreement between Nora Y. Amin, ******
National Bank of California, Amexdrug and its
subsidiaries dated June 9, 2009
10.13 Business Loan Agreement between National Bank of ******
California, Amexdrug and its subsidiaries dated
June 23, 2008
10.14 Commercial Security Agreement between National ******
Bank of California, Amexdrug and its subsidiaries
dated June 23, 2008
10.15 Commercial Guarantee between National Bank of ******
California, Jack N. Amin, Amexdrug and its
Subsidiaries
10.16 Commercial Guarantee between National Bank of ******
California, Nora Y. Amin, Amexdrug and its
subsidiaries
10.17 Lease Agreement between Fullerton Business *******
Center, LLC, Lessor, and Allied Med, Inc.,
Lessee, dated July 8, 2009 (Unit H)
49
10.18 Guaranty of Lease by Jack Amin (Unit H) *******
10.19 Lease Agreement between Fullerton Business This Filing
Center, LLC, Lessor, and Allied Med, Inc.,
Lessee, dated November 9, 2009 (Unit I at
2488 E. Fender Avenue)
10.20 Third Amendment to Lease Agreement between This Filing
Fullerton Business Center, Lessor, and
Allied Med, Inc., Lessee, dated November 5,
2008 (Unit I & J)
14.1 Code of Ethics ****
21.1 List of Subsidiaries of Amexdrug Corporation ******
31.1 Certification of Chief Executive Officer This Filing
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
31.2 Certification of Chief Financial Officer This Filing
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1 Certification of Chief Executive Officer This Filing
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2 Certification of Chief Financial Officer This Filing
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Summaries of all exhibits contained within this
report are modified in their entirety by reference
to these Exhibits.
* Exhibit 2.1 is incorporated by reference from
Amexdrug's Form 8-K Current Report filed December
21, 2001 as Exhibit No. 10.01.
** Exhibit 2.2 is incorporated by reference from
Amexdrug's Form 8-K Current Report filed January
15, 2002 as Exhibit No. 10.01.
*** Exhibit 3.1 and 3.2 are incorporated by reference
from Amexdrug's Form 10-KSB for the years
ended December 31, 2001 filed on April 1, 2002.
**** Exhibit 14.1 is incorporated by reference from
Amexdrug's Form 10-K for the year ended
December 31, 2008 filed April 13, 2009
***** Exhibits 10.3, 10.4 and 10.5 are incorporated
by reference From Amexdrug's Form 10-Q for the
period ended June 30, 2009 filed August 14, 2009
****** Exhibits 10.1, 10.2, 10.6 through 10.16, and
21.1 are incorporated by reference from Amexdrug's
Form 10-Q/A for the period ended June 30, 2009
filed September 18, 2009
******* Exhibits 10.17 and 10.18 are incorporated by
reference from Amexdrug's Form 10-Q for the period
ended September 30, 2009 filed November 12, 2009
50
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SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2010 By /s/ Jack Amin
-----------------------------------
Jack Amin, Director, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant, in
the capacities and on the dates indicated.
Date: March 30, 2010 By /s/ Jack Amin
-------------------------------------
Jack Amin, Director, President and
Chief Executive Officer, Chief
Financial Officer and Chief
Accounting Officer
Date: March 30, 2010 By___________________________
-------------------------------------
Rodney Barron, M.D., Director
Date: March 30, 2010 By /s/ Behrooz Meimand
-------------------------------------
Behrooz Meimand, Director
51
EXHIBIT INDEX
Exhibit Exhibit
Number Description Location
- ------- ----------- --------
2.1 Agreement and Plan of Merger *
(to change domicile from California)
2.2 Agreement and Plan of Reorganization **
3.1 Articles of Incorporation ***
3.2 By-Laws ***
10.1 Lease Agreement between Fullerton Business ******
Center, Lessor, and Allied Med, Inc., Lessee,
dated September 23, 2005 (Unit K)
10.2 Lease Agreement between Fullerton Business ******
Center, Lessor, and Allied Med, Inc., Lessee,
dated September 23, 2005 (Units I & J)
10.3 Third Amendment to Lease Agreement between *****
Fullerton Business Center, Lessor, and Allied Med,
Inc., Lessee, dated November 5, 2008 (Units I and J)
10.4 Promissory Note with National Bank of California *****
dated June 23, 2008
10.5 Change in Terms Agreement with National Bank of *****
California dated June 9, 2009
10.6 First Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc.,
Lessee, dated September 11, 2006 (Unit K)
10.7 First Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc.,
Lessee, dated September 11, 2006 (Units I & J)
10.8 Second Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc.,
Lessee, dated October 25, 2007 (Unit K)
10.9 Second Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc., Lessee,
dated October 25, 2007 (Units I & J)
10.10 Third Amendment to Lease Agreement between Fullerton ******
Business Center, Lessor, and Allied Med, Inc.,
Lessee, dated November 5, 2008 (Unit K)
10.11 Change in Terms Agreement with National Bank of ******
California dated March 3, 2009
10.12 Subordination Agreement between Nora Y. Amin, ******
National Bank of California, Amexdrug and its
subsidiaries dated June 9, 2009
52
10.13 Business Loan Agreement between National Bank of ******
California, Amexdrug and its subsidiaries dated
June 23, 2008
10.14 Commercial Security Agreement between National ******
Bank of California, Amexdrug and its subsidiaries
dated June 23, 2008
10.15 Commercial Guarantee between National Bank of ******
California, Jack N. Amin, Amexdrug and its
Subsidiaries
10.16 Commercial Guarantee between National Bank of ******
California, Nora Y. Amin, Amexdrug and its
subsidiaries
10.17 Lease Agreement between Fullerton Business *******
Center, LLC, Lessor, and Allied Med, Inc.,
Lessee, dated July 8, 2009 (Unit H)
10.18 Guaranty of Lease by Jack Amin (Unit H) *******
10.19 Lease Agreement between Fullerton Business This Filing
Center, LLC, Lessor, and Allied Med, Inc.,
Lessee, dated November 9, 2009 (Unit I at
2488 E. Fender Avenue)
10.20 Third Amendment to Lease Agreement between This Filing
Fullerton Business Center, Lessor, and
Allied Med, Inc., Lessee, dated November 5,
2008 (Unit I & J)
14.1 Code of Ethics ****
21.1 List of Subsidiaries of Amexdrug Corporation ******
31.1 Certification of Chief Executive Officer This Filing
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
31.2 Certification of Chief Financial Officer This Filing
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1 Certification of Chief Executive Officer This Filing
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2 Certification of Chief Financial Officer This Filing
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Summaries of all exhibits contained within this
report are modified in their entirety by reference
to these Exhibits.
* Exhibit 2.1 is incorporated by reference from
Amexdrug's Form 8-K Current Report filed December
21, 2001 as Exhibit No. 10.01.
53
** Exhibit 2.2 is incorporated by reference from
Amexdrug's Form 8-K Current Report filed January
15, 2002 as Exhibit No. 10.01.
*** Exhibit 3.1 and 3.2 are incorporated by reference
from Amexdrug's Form 10-KSB for the years
ended December 31, 2001 filed on April 1, 2002.
**** Exhibit 14.1 is incorporated by reference from
Amexdrug's Form 10-K for the year ended
December 31, 2008 filed April 13, 2009
***** Exhibits 10.3, 10.4 and 10.5 are incorporated
by reference From Amexdrug's Form 10-Q for the
period ended June 30, 2009 filed August 14, 2009
****** Exhibits 10.1, 10.2, 10.6 through 10.16, and
21.1 are incorporated by reference from Amexdrug's
Form 10-Q/A for the period ended June 30, 2009
filed September 18, 2009
******* Exhibits 10.17 and 10.18 are incorporated by
reference from Amexdrug's Form 10-Q for the period
ended September 30, 2009 filed November 12, 2009
54
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