Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

[   ]

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

Amexdrug Corporation

(Exact name of registrant as specified in its charter)

 

NEVADA	95-2251025
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer identification No.)

7251 Condor Street

Commerce, California 90040

(Address of principal executive offices)

Registrant's telephone number: [phone]

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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [X]  No [  ]

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 Exchange Act). Yes [  ] No [ X ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 9, 2012, there were 8,470,481 shares of the issuer’s common stock issued and outstanding, including 14,672 shares held as treasury shares.  After giving effect to the 20 for 1 forward stock split scheduled to occur to the Company’s common stock on November 30, 2012, this equates to 169,409,620 post-stock split shares outstanding, including 293,440 post-stock split shares held as treasury shares.

 

 

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AMEXDRUG CORPORATION

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

		Page
Item 1.   Financial Statements (Unaudited)		3
	Consolidated Balance Sheets — As of September 30, 2012 (Unaudited) and December 31, 2011 (Audited)	5
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.   Management’s Discussion and Analysis of Financial Condition and  Results of Operations		10
Item 3.   Quantitative and Qualitative Disclosures About Market Risk		15
Item 4.   Controls and Procedures		16
PART II – OTHER INFORMATION
Item 1.   Legal Proceedings		16
Item 1A. Risk Factors		16
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3.   Defaults Upon Senior Securities		16
Item 4.   Mine Safety Disclosures		16
Item 5.   Other Information		16
Item 6.   Exhibits		17

 

 

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PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements.

The consolidated balance sheets of Amexdrug Corporation, a Nevada corporation, and subsidiaries as of September 30, 2012 (unaudited) and December 31, 2011 (audited), the related unaudited consolidated statements of operations for the three and nine month periods ended September 30, 2012 and September 30, 2011, the related unaudited consolidated statements of cash flows for the nine month periods ended September 30, 2012 and September 30, 2011, and the notes to the unaudited consolidated financial statements follow.  The consolidated financial statements have been prepared by Amexdrug’s management, and are condensed; therefore they do not include all information and notes to the financial statements necessary for a complete presentation of the financial position, results of operations and cash flows, in conformity with accounting principles generally accepted in the United States of America, and should be read in conjunction with the annual consolidated financial statements included in Amexdrug’s annual report on Form 10-K for the year ended December 31, 2011.

The accompanying consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the results of operations and financial position of Amexdrug Corporation consolidated with BioRx Pharmaceuticals, Inc., Allied Med, Inc., and Dermagen, Inc., and its wholly owned subsidiaries, and all such adjustments are of a normal recurring nature.  The names “Amexdrug”, “we”, “our” and “us” used in this report refer to Amexdrug Corporation.

Operating results for the quarter ended September 30, 2012, are not necessarily indicative of the results that can be expected for the year ending December 31, 2012.

Proposed Forward Stock Split and Increase in Authorized Shares

The Company’s Board of Directors has approved a 20 for 1 forward stock split and an increase in the number of authorized shares of the Company’s common stock from 50,000,000 shares to 1,000,000,000 shares.  The par value remains at $0.001. Both of these actions were approved pursuant to Section 78.209 of the Nevada Revised Statutes, and are to become effective on November 30, 2012 at 5:00 p.m. Eastern Time.  After giving effect to the 20 for 1 forward stock split, the number of outstanding shares of the Company’s common stock will increase from 8,470,481 pre-split shares to 169,409,620 post-split shares outstanding, as each outstanding share of the Company’s common stock will become 20 shares as a result of the forward stock split.  The effects of the 20 to 1 forward stock split have been applied to the Company’s financial statements included in this quarterly report as though the forward stock split has already occurred.

 

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AMEXDRUG CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

	Page
Consolidated Balance Sheets – September 30, 2012 (Unaudited) and December 31, 2011 (Audited)	5
Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2012 and 2011	6
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2012 and 2011	7
Notes to Consolidated Financial Statements	8

 

 

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AMEXDRUG CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		September 30, 2012				December 31, 2011
		(Unaudited)
Assets
Current Assets
Cash and cash equivalents		$	397,790			$	589,472
Investment			4,998				2,112
Accounts receivable, net of allowance of $21,561 and 21,561, respectively			550,376				653,949
Prepaid expenses			412,894				45,513
Inventory			717,249				198,176
Deferred tax asset			8,200				12,600
Total Current Assets			2,091,507				1,501,822
Property and Equipment, at cost
Office and computer equipment			239,752				239,752
Leasehold improvements			15,700				15,700
			255,452				255,452
Less accumulated depreciation			(212,918	)			(205,562	)
Net Property and Equipment			42,534				49,890
Other Assets
Other deposits			28,212				28,212
Intangibles
Customer base, net of accumulated amortization of $18,259			-				-
Trademark, net of accumulated amortization of $837 and $629, respectively			689				813
Goodwill			17,765				17,765
Total Other Assets			46,666				46,790
Total Assets		$	2,180,707			$	1,598,502
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable		$	346,638			$	463,098
Accrued liabilities			10,912				31,098
Deferred operating lease liability			14,888				14,132
Corporate tax payable			72,262				-
Notes payable related parties			109,081				109,694
Business lines and short term promissory note			724,343				631,903
Promissory note, current portion			58,370				-
Total Current Liabilities			1,336,494				1,249,925
Long Term Liabilities
Promissory note			314,319				-
Total Long Term Liabilities			314,319				-
Total Liabilities			1,650,813				1,249,925
Shareholders' Equity
Common stock, $0.001 par value; 1,000,000,000 authorized common shares 169,409,620 shares issued and outstanding			169,410				169,410
Additional paid in capital			-				-
Treasury stock			(14,933	)			(13,972	)
Retained earnings			375,417				193,139
Total Shareholders' Equity			529,894				348,577
Total Liabilities and Shareholders' Equity		$	2,180,707			$	1,598,502

 

The accompanying notes are an integral part of these consolidated financial statements

 

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AMEXDRUG CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30, 2012				September 30, 2011				September 30, 2012				September 30, 2011
Sales		$	2,168,740			$	3,100,218			$	6,664,433			$	9,562,015
Cost of Goods Sold			1,933,611				2,776,937				5,808,393				8,486,052
Gross Profit			235,129				323,281				856,040				1,075,963
Operating Expenses
Selling, general and administrative expense			179,084				186,425				565,112				528,064
Total Operating Expenses			179,084				186,425				565,112				528,064
Income  before depreciation expense			56,045				136,856				290,928				547,899
Depreciation and amortization expense			2,490				1,681				7,479				3,852
Income before Other Income/(Expenses)			53,555				135,175				283,449				544,047
Other Income/(Expenses)
Interest and other income			1				2				4				5
Penalty			-				-				-				(4,098	)
Unrealized gain/(loss)			740				(2,244	)			870				(3,136	)
Interest expense			(8,851	)			(6,831	)			(20,075	)			(20,899	)
Total Other Income/(Expenses)			(8,110	)			(9,073	)			(19,201	)			(28,128	)
Income before Provision for Income Taxes			45,445				126,102				264,248				515,919
Income tax expense			(9,584	)			(43,581	)			(81,970	)			(197,734	)
Net Income		$	35,861			$	82,521			$	182,278			$	318,185
BASIC AND DILUTED INCOME PER SHARE		$	0.00			$	0.00			$	0.00			$	0.00
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED			169,409,620				169,409,620				169,409,620				169,409,620

The accompanying notes are an integral part of these consolidated financial statements

 

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AMEXDRUG CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine Months Ended
		September 30, 2012				September 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	182,278				318,185
Adjustment to reconcile net income to net cash used in operating activities
Depreciation and amortization			7,479				3,852
Unrealized (gain)/loss on investment			(870	)			3,136
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts receivable			103,573				(307,145	)
Inventory			(519,073	)			(53,480	)
Prepaid expenses			(367,381	)			8,079
Deferred tax asset			4,400				18,054
Other assets			-				(13,750	)
Increase (Decrease) in:
Accounts payable and accrued liabilities			(136,645	)			(158,930	)
Deferred operating lease liability			756				11,955
Corporate income tax payable			72,262				18,427
NET CASH USED IN OPERATING ACTIVITIES			(653,221	)			(151,617	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments			-				-
Proceeds from the sale of investment			(2,016	)			1,104
Purchase of fixed assets			-				(28,319	)
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES			(2,016	)			(27,215	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to officer			(613	)			(9,069	)
Proceeds from promissory note			372,689				-
Purchase of treasury stock			(961	)			(1,104	)
Proceeds from credit line			92,440				(113,156	)
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES			463,555				(123,329	)
NET DECREASE IN CASH			(191,682	)			(302,161	)
CASH, BEGINNING OF PERIOD			589,472				443,703
CASH, END OF PERIOD		$	397,790			$	141,542
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	12,530			$	16,910
Income taxes		$	-			$	52,948

The accompanying notes are an integral part of these consolidated financial statements

 

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AMEXDRUG CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2012

 

 

1.	BASIS OF PRESENTATION

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.  For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2011.

 

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.

Income per Share Calculations

Income per Share dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted income per share is the same as the basic income per share for the nine months ended September 30, 2012, because there are no outstanding dilutive instruments.

3.	CAPITAL STOCK

During the nine months ended September 30, 2012, the Company issued no shares of common stock.

4.	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 2010.

The Company accounts for uncertainty in tax positions by recognition in the financial statements.

The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

5.	PROMISSORY NOTE

On July 30, 2012, the Company entered into a promissory note line of credit in the amount of $393,930, of which $372,689 has been disbursed to the Company for the purchase of a labeling machine. The note bears interest at 4.5% on the unpaid balance per annum over 360 days based on the actual number of days outstanding. The principal and interest is paid in accordance with the following schedule; there will be three (3) monthly consecutive interest payments, beginning August 30, 2012; 59 monthly consecutive principal and interest payments of $5,488 each, beginning November 30, 2012; and one principal and interest payment of $104,456 on October 30, 2017, based on an outstanding balance of $372,689. As of September 30, 2012, the principal amount outstanding on the note was $372,689.

 

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AMEXDRUG CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2012

6.	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:

 

						Health and
						Beauty
		Distributions				Products				Total
For the period ended September 30, 2012
Sales to external customers		$	5,316,285			$	1,348,148			$	6,664,433
Depreciation and amortization			2,429				5,051				7,479
Segment income (loss) before taxes			29,778				234,470				264,248
Segment assets			1,333,411				847,296				2,180,707
For the period ended September 30, 2011
Sales to external customers		$	8,459,446			$	1,102,569			$	9,562,015
Depreciation and amortization			2,430				1,422				3,852
Segment income (loss) before taxes			500,012				15,907				515,919
Segment assets			829,809				587,105				1,416,914

 

7.	SUBSEQUENT EVENT

 

On October 25, 2012, the Board of Directors approved a 20 for 1 forward stock split and increase in the number of authorized shares of the Company’s common stock from 50,000,000 shares to 1,000,000,000 shares to be effective on November 30, 2012.  The effects of the 20 to 1 forward split have been applied to the financial statements as though the forward split has already occurred.  Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has determined there are no additional subsequent events to be reported.

 

8.	COMMITMENTS AND CONTINGENCIES

 

Operating Leases

The Company’s principal executive offices and its warehouse and distribution operations moved to 7251 Condor Street, Commerce California in March 2011. The Company leases 27,500 square feet at a rental rate of $7,700 per month. The rental amount is scheduled to increase to $8,800 per month effective March 1, 2013. The lease expires in March 2014.

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Amexdrug Corporation is located at 7251 Condor Street, Commerce, California 90040.  Its phone number is [phone].  Its fax number is [phone]. 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 30 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 attempting to maximize 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-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 name Sponix.

 

 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 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 2012.

 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.

 

Amexdrug currently has 50,000,000 shares of authorized common stock $.001 par value, of which 8,470,481 are issued and outstanding as of September 30, 2012, including 14,672 shares held as treasury shares.  After giving effect to the 20 for 1 forward stock split and the increase in the number of authorized common shares scheduled to occur to the Company’s common stock on November 30, 2012, the Company will then have 1,000,000,000 shares of authorized common stock $.001 par value, 169,409,620 post-split shares of its common stock outstanding including 293,440 post-split shares held as treasury shares.

BioRx Pharmaceuticals

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.

 

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A total of fourteen innovative health and wellness products have been for sale by BioRx Pharmaceuticals, Inc. 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 are being marketed under the

name of Sponix, and are being sold under the name of BioRx Pharmaceuticals.  In addition BioRx Pharmaceuticals sells pharmacy and laboratory supplies.

Allied Med, Inc.

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. At Allied Med our sincere interest is our customers' needs. Our competitive discount pricing allows our customers an advantage.

 

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.

Dermagen, Inc.

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.

Royal Health Care Company

In October 2003, Allied Med, Inc. acquired 100% of the assets of Royal Health Care Company.  Royal Health Care Company is a health and beauty company which has sold specially manufactured facial and body creams, arthritic pain relief medications and an exclusive patented hair care product to pharmacies, beauty salons, beauty supply stores and other fine shops. Royal Health Care Company uses the highest quality ingredients for the finest quality products. Each product has been formulated with the essential ingredients and plant extracts to achieve optimum potential and quality.  Royal Health Care Company products are manufactured by 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.

 

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Lease Agreements and Certain Other Contracts

The Company's principal executive offices and its warehouse and distribution operations moved to 7251 Condor Street, Commerce California in March 2011.  The Company leases 27,500 square feet at a rental rate of $7,700 per month.  The rental amount is scheduled to increase to $8,800 per month effective March 1, 2013.  Approximately 2,500 square feet of the premises is used for executive offices, and the balance of the premises is used for warehouse and distribution operations.  The lease is for a period of three years which commenced on March 1, 2011 and terminates on February 28, 2014.  The Company has the option to extend the lease for two additional three year periods.  If the Company exercises the first option to extend, the rental rate would increase to $9,900 per month effective March 1, 2014, $11,000 per month effective March 1, 2015 and $11,550 per month effective March 1, 2016. If the Company exercises the second option to extend, the rental rate would be adjusted to a fair market rental value as may be agreed to by the parties or as may be determined by an appraiser or arbitrator as provided in the Option to Extend Addendum. Payment of the lease has been personally guaranteed by Jack Amin and his wife, Nora Amin.  The Company believes this space will be sufficient for at least the next twelve months.

The Company’s Dermagen, Inc. manufacturing operations are currently located at 2500 East Fender Avenue, Units I&J, Fullerton, California, which is leased under one lease agreement dated March 1, 2011.  The Company leases approximately 3,520 square feet at a rental rate of $2,464 per month.  The lease was amended in early 2012 to extend the lease term for a period of one year.  The lease will now expire on February 28, 2013.  Payment of the lease has been personally guaranteed by Jack Amin. 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.

The Company’s loan agreement with Nora Amin is verbal, and it has a balance owing of $108,023 as of September 30, 2012.  The Company does not have written contracts with its major suppliers or buyers.

The Company entered into a business loan agreement and promissory note line of credit during June 2012 with National Bank of California for $393,920.  The Company drew $372,689 on the line of credit to purchase a labeling machine.  The note bears interest at 4.5% on the unpaid balance per annum over 360 days based on the actual number of days outstanding. The principal and interest is paid in accordance with the following schedule; there will be three (3) monthly consecutive interest payments, beginning August 30, 2012; 59 monthly consecutive principal and interest payments of $5,488 each, beginning November 30, 2012; and one principal and interest payment of $104,456 on October 30, 2017, based on an outstanding balance of $372,689. As of September 30, 2012, the principal amount outstanding on the note was $372,689.

The Company renewed a promissory note during June 2012 from National Bank of California for $700,000, which as of September 30, 2012 has a balance owing of $663,652. The interest rate is 2.5% over the index payable every month. The note matures on June 9, 2013.

The Company has a written line of credit agreement with Wells Fargo Bank for $70,000, which as of September 30, 2012 has a balance owing of $60,690. The interest rate is prime plus 4% payable every month.

 

Copies of the Company’s written lease agreements and material contracts have been filed as exhibits to certain of its quarterly and annual reports.  See the Exhibit Index for a description of these agreements and for information on where copies can be found.

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.

 

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Manufacturing includes expertise in research and development for health care industry products, including pharmacy supplies.

Results of Operations

For the Three Months Ended September 30, 2012 .

Revenues .

For the three months ended September 30, 2012, Amexdrug reported sales of $2,168,740, comprised of $1,692,967 of sales from the Company’s pharmaceutical wholesale business of selling brand name and generic pharmaceutical products and over the counter   (OTC) health and beauty products, and $475,773 of sales of health and beauty products manufactured by the Company.  This is $931,478   less than the $3,100,218 of sales reported for the three months ended September 30, 2011, which was comprised primarily of $2,747,163 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 $353,055 of sales of health and beauty products manufactured by the Company.  During the three month period ended September 30, 2012, Amexdrug experienced a decrease in total sales due, in part, to declining sales of some brand name drugs which became generically available and also due to the loss of some customers.

Costs of Goods Sold .

Cost of goods sold for the three months ended September 30, 2012 was $1,933,611 a decrease of $843,326   from the $2,776,937 cost of goods sold for the three months ended September 30, 2011.  The decrease is attributable to the decrease in sales in the later period.

Gross Profit .

During the three months ended September 30, 2012 gross profit decreased by $88,152   to $235,129 or 10.8%   of sales, from the $323,281, or 10.4% of sales recorded for the three months ended September 30, 2011.  The increase in gross profit margin is largely attributable to a decrease in total sales offset by an increase in the percentage of sales of higher gross margin products sold in the three month period ended September 30, 2012.

Expenses .

Total operating expenses, consisting entirely of selling, general and administrative expenses, for the three months ended September 30, 2012 were $179,084, a decrease of $7,341 from the total operating expenses of $186,425 recorded for the three months ended September 30, 2011.

Net Income .

During the three months ended September 30, 2012, Amexdrug earned net income of $35,861, as compared to the net income of $82,521earned in the three months ended September 30, 2011.  Amexdrug’s $46,660 decrease in net income during the three month period ended September 30, 2012 is attributable largely to the smaller gross profit generated from decreased sales of goods in the later period.

For the Nine Months Ended September 30, 2012 .

Revenues .

For the nine months ended September 30, 2012, Amexdrug reported sales of $6,664,433, comprised of $5,316,285 of sales from the Company’s pharmaceutical wholesale business of selling brand name and generic pharmaceutical products and over the counter (OTC) health and beauty products, and $1,348,148 of sales of health and beauty products manufactured by the Company.  This is $2,897,582   less than the $9,562,015of sales reported for the nine months ended September 30, 2011 which was comprised primarily of $8,459,446 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 $1,102,569 of sales of health and beauty products manufactured by the Company.  During the nine month period ended September 30, 2012, Amexdrug experienced a decrease in total sales due, in part, to declining sales of some brand name drugs which became generically available and also due to the loss of some customers.

 

 

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Costs of Goods Sold.

Cost of goods sold for the nine months ended September 30, 2012 was $5,808,393, a decrease of $2,677,659   from the $8,486,052 cost of goods sold for the nine months ended September 30, 2011.  The decrease is attributable to the decrease in sales in the later period.

Gross Profit .

During the nine months ended September 30, 2012 gross profit decreased by $219,923 to $856,040, or 12.8%   of sales, from the $1,075,963, or 11.3% of sales recorded for the nine months ended September 30, 2011.  The increase in gross profit margin is largely attributable to a decrease in total sales offset by an increase in the percentage of sales of higher gross margin products sold in the first nine months of 2012.

Expenses.

Total operating expenses, consisting entirely of selling, general and administrative expense, for the nine months ended September 30, 2012 were $565,112, an increase of $37,048 from the total operating expenses of $528,064 recorded for the nine months ended September 30, 2011.  The increase in selling, general and administrative expenses is primarily attributable to increased marketing expense in the later period, partially offset by decreased commissions payable on decreased sales in the later period.

 

Net Income .

During the nine months ended September 30, 2012, Amexdrug earned net income of $182,278, a decrease of $135,907 from the net income of $318,185 earned in the nine months ended September 30, 2011. Amexdrug's decrease in net income during the nine month period ended September 30, 2012 is attributable largely to the smaller gross profit generated from decreased sales of goods in the later period.

Liquidity and Capital Resources – September 30, 2012

As of September 30, 2012, Amexdrug reported total current assets of $2,091,507, comprised of cash and cash equivalents of $397,790, accounts receivable of $550,376, inventory of $717,249, prepaid expenses of $412,894 a deferred tax asset of $8,200 and an investment of $4,998. Total assets as of September 30, 2012 were $2,180,707 which included total current assets, plus net property and equipment of $42,534, other deposits of $28,212, Trademark of  $689, and goodwill of $17,765.

Amexdrug’s liabilities as of September 30, 2012 consisted primarily of accounts payable of $346,638, notes payable to related parties of $109,081, business line and short term promissory note of $724,343, corporate tax payable of $72,262 and promissory note, current portion of $58,370.

During the nine months ended September 30, 2012, Amexdrug used $653,221 cash in operating activities compared to $151,617 cash used in operating activities in the nine months ended September 30, 2011.  The primary adjustments to reconcile net income to net cash used in operating activities during the nine months ended September 30, 2012 were as follows:  a decrease in accounts receivable of $103,573, an increase in inventory of $519,073, an increase in prepaid expenses of $367,381, a decrease in accounts payable and accrued liabilities of $136,645, and an increase in corporate income tax payable of $72,262.  Amexdrug had $397,790   in cash and cash equivalents at September 30, 2012.  Operations have primarily been funded through cash generated from operations and through increased borrowings when needed.  Management does not anticipate that Amexdrug will need to seek additional financing during the next twelve months.

 

 

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Stock Repurchases

Between approximately June 2007 and September 30, 2012, Amexdrug repurchased a total of 14,672 pre-split shares of its common stock at prices ranging from a low of $0.20 per pre-split share to a high of $3.03 per pre-split share.  Giving effect to the 20 for 1 forward stock split planned to take effect on November 30, 2012, this is equivalent to repurchasing a total of 293,440 post-split shares at prices ranging from a low of $0.01 per post-split share to a high of $0.15 per post-split share. These shares are held by Amexdrug as treasury shares. Amexdrug anticipates that it may make additional small purchases of its shares throughout the remainder of 2012.

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 $0 and $0 on capital expenditures during the three month periods ended September 30, 2012 and 2011, respectively.  The Company has paid for a labeling machine (currently in prepaid expenses) in the amount of $372,689 which was received in November 2012.

Critical Accounting Policies

In the notes to the audited consolidated financial statements for the year ended December 31, 2011, included in the Company’s Annual Report on 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.

Forward-looking statements

This document includes various forward-looking statements with respect to future operations of Amexdrug that are subject to risks and uncertainties.  Forward-looking statements include information concerning expectations of future results of operations and such statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates” or similar expressions.  For those statements, Amexdrug claims the protection of the safe harbor for forward-looking statements contained in the Private Litigation Reform Act of 1995.  Actual results may vary materially.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

A “smaller reporting company” (as defined by Item 10 of the Regulation S-K) is not required to provide the information required by this Item.

 

 

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Item 4. Controls and Procedures.

Under the supervision and with the participation of management, our principal executive officer and principal 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 September 30, 2012.  Based on this evaluation, our principal executive officer and our principal 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.

During the last fiscal quarter ended September 30, 2012, there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q REPORT REFLECT MANAGEMENT’S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS AND UNCERTAINTIES.  ACTUAL RESULTS MAY VARY MATERIALLY.

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.

 

Amexdrug is not presently a party to any material pending legal proceedings.  To the best of Amexdrug’s knowledge, no governmental authority or other party has threatened or is contemplating the filing of any material legal proceeding against Amexdrug.

Item 1A.  Risk Factors.

A “smaller reporting company” (as defined by Item 10 of the Regulation S-K) is not required to provide the information required by this Item.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

During the three month period ended September 30, 2012, the Company did not issue any shares of its unregistered common stock.  For a description of any sales of shares of the Company’s unregistered stock made in the past three years, please refer to the Company’s Annual Reports on Form 10-KSB or Form 10-K, and the Company’s Quarterly Reports on Form 10-QSB or Form 10-Q filed since December 31, 2007.

Item 3.   Defaults Upon Senior Securities.

              None; not applicable.

Item 4.   Mine Safety Disclosures.

              None; not applicable.

Item 5.   Other Information.

 

              None; not applicable.

 

 

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Item 6. Exhibits.

 

          (a) Exhibits.

The following exhibits are filed as part of this report.

EXHIBIT INDEX

Exhibit		Exhibit
Number	Description	Location
2.1	Agreement and Plan of Merger (to change domicile from California)	1
2.2	Agreement and Plan of Reorganization	2
3.1	Articles of Incorporation	3
3.2	By-Laws	3
3.3	Certificate of Change Pursuant to N.R.S.78.209	This Filing
10.1	Promissory Note with National Bank of California dated June 23, 2008	5
10.2	Change in Terms Agreement   with National Bank of  California dated June 9, 2009	5
10.3	Change in Terms Agreement   with National Bank of California dated March 3, 2009	6
10.4	Change in Terms Agreement with National Bank of  California dated December 21, 2011	8
10.5	Change in Terms Agreement with National Bank of  California dated June 9, 2012	This Filing
10.6	Subordination Agreement between Nora Y. Amin, National Bank of California, Amexdrug and its  subsidiaries dated June 9, 2009	6
10.7	Business Loan Agreement   between National Bank of  California, Amexdrug and its subsidiaries dated  June 23, 2008	6
10.8	Commercial Security   Agreement   between National Bank of California, Amexdrug and its subsidiaries dated June 23, 2008	6
10.9	Commercial Guarantee   between National Bank of  California, Jack N. Amin, Amexdrug and its Subsidiaries	6
10.10	Commercial Guarantee   between National Bank of  California, Nora Y. Amin, Amexdrug and its Subsidiaries	6

 

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10.11	Lease Agreement between Fullerton Business Center, LLC, Lessor, and Allied Med, Inc., Lessee, dated March 1, 2011 (Units I & J)	7
10.12	First Amendment to Lease Extending Lease Term (Units I & J) dated January 18, 2012	8
10.13	Guaranty of Lease by Jack Amin (Units I & J)	7
10.14	Lease Agreement between Condor Associates, LLC, Lessor, and Allied Med, Inc., Lessee, dated February 22, 2011	7
10.15	Guaranty of Lease by Jack Amin and Nora Amin	7
10.16	Business Loan Agreement between National Bank of California, Amexdrug and its Subsidiaries dated July 30, 2012	This Filing
10.17	Promissory Note with National Bank of California dated July 30, 2012	This Filing
14.1	Code of Ethics	4
21.1	List of Subsidiaries of Amexdrug Corporation	6
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002	This Filing
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002	This Filing
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002	This Filing
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002	This Filing
101.INS	XBRL Instance Document	9
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	9
101.LAB	XBRL Taxonomy Extension Label Linkbase	9
101.DEF	XBRL Taxonomy Extension Definition Linkbase	9
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	9
101.SCH	XBRL Taxonomy Extension Schema	9

 

 

 

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       Summaries of all exhibits contained within this report are modified in their entirety by reference to these Exhibits.

1               Exhibit 2.1 is incorporated by reference from Amexdrug’s Form 8-K Current Report filed December 21, 2001 as Exhibit No. 10.01.

2               Exhibit 2.2 is incorporated by reference from  Amexdrug’s Form 8-K Current Report filed January 15, 2002 as Exhibit No. 10.01.

3               Exhibit 3.1 and 3.2 are incorporated by reference from Amexdrug’s Form 10-KSB for the year ended December 31, 2001 filed on April 1, 2002.

4               Exhibit 14.1 is incorporated by reference from Amexdrug’s Form 10-K for the year ended December 31, 2008 filed April 13, 2009

 

5               Exhibits 10.1 and 10.2 are incorporated  by reference From Amexdrug’s Form 10-Q for the period ended June 30, 2009 filed August 14, 2009

 

6.              Exhibits 10.3 and 10.6 through 10.10 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

 

7.              Exhibits 10.11, and 10.13 through 10.15 are incorporated by reference from Amexdrug’s Form 10-K for the year ended December 31, 2010 filed March 31, 2011

 

8.              Exhibits 10.4 and 10.12 are incorporated by reference From Amexdrug’s Form 10-K for the year ended December 31, 2011 filed March 31, 2012

 

9               Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	AMEXDRUG CORPORATION
Date: November 14, 2012	By: /s/ Jack Amin
	Jack Amin
	Director, President, Chief Executive Officer,
	Chief Financial Officer and Chief Accounting Officer

 

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