Item 1. Financial Statements.
The consolidated balance sheets of Amexdrug Corporation, a Nevada corporation, and subsidiaries as of March 31, 2013 (unaudited) and December 31, 2012 (audited), the related unaudited consolidated statements of operations for the three month periods ended March 31, 2013 and March 31, 2012, the related unaudited consolidated statements of cash flows for the three month periods ended March 31, 2013 and March 31, 2012 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, 2012.
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., 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 March 31, 2013, are not necessarily indicative of the results that can be expected for the year ending December 31, 2013.
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
125,972
|
|
|
$
|
415,962
|
|
|
Investment
|
|
|
5,348
|
|
|
|
5,991
|
|
|
Accounts receivable, net of allowance of $7,833 and $7,833, respectively
|
|
|
640,419
|
|
|
|
558,569
|
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
77,605
|
|
|
Inventory
|
|
|
832,633
|
|
|
|
800,936
|
|
|
Other asset
|
|
|
11,425
|
|
|
|
11,002
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
1,615,797
|
|
|
|
1,870,065
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, at cost
|
|
|
|
|
|
|
|
|
|
Office and computer equipment
|
|
|
700,736
|
|
|
|
698,339
|
|
|
Leasehold improvements
|
|
|
15,700
|
|
|
|
15,700
|
|
|
|
|
|
716,436
|
|
|
|
714,039
|
|
|
Less accumulated depreciation
|
|
|
(242,577
|
)
|
|
|
(224,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Property and Equipment
|
|
|
473,859
|
|
|
|
489,104
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
|
Other deposits
|
|
|
29,862
|
|
|
|
29,862
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
Customer base, net of accumulated amortization of $18,259
|
|
|
-
|
|
|
|
-
|
|
|
Trademark, net of accumulated amortization of $42 and $1,002, respectively
|
|
|
606
|
|
|
|
648
|
|
|
Goodwill
|
|
|
17,765
|
|
|
|
17,765
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
48,233
|
|
|
|
48,275
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,137,889
|
|
|
$
|
2,407,444
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
387,094
|
|
|
$
|
697,339
|
|
|
Accrued liabilities
|
|
|
8,284
|
|
|
|
8,780
|
|
|
Deferred operating lease liability
|
|
|
13,192
|
|
|
|
14,590
|
|
|
Deferred tax liability
|
|
|
55,500
|
|
|
|
57,300
|
|
|
Corporate tax payable
|
|
|
1,915
|
|
|
|
-
|
|
|
Notes payable related parties
|
|
|
108,023
|
|
|
|
108,023
|
|
|
Business lines and short term promissory note
|
|
|
589,405
|
|
|
|
697,842
|
|
|
Promissory note, current portion
|
|
|
58,370
|
|
|
|
58,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,221,783
|
|
|
|
1,642,244
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
|
Promissory note
|
|
|
315,347
|
|
|
|
335,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Term Liabilities
|
|
|
315,347
|
|
|
|
335,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,537,130
|
|
|
|
1,977,794
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 1,00
0,000,000 authorized common shares
169,409,620 shares issued and outstanding
|
|
|
169,410
|
|
|
|
169,410
|
|
|
Additional paid in capital
|
|
|
(77,594
|
)
|
|
|
(77,594
|
)
|
|
Treasury stock
|
|
|
(16,169
|
)
|
|
|
(14,933
|
)
|
|
Retained earnings
|
|
|
525,112
|
|
|
|
352,767
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders' Equity
|
|
|
600,759
|
|
|
|
429,650
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity
|
|
$
|
2,137,889
|
|
|
$
|
2,407,444
|
|
The accompanying notes are an integral part of these consolidated financial statements
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,360,911
|
|
|
$
|
2,180,990
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
1,842,165
|
|
|
|
1,820,350
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
518,746
|
|
|
|
360,640
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
243,208
|
|
|
|
188,842
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
243,208
|
|
|
|
188,842
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before depreciation expense
|
|
|
275,538
|
|
|
|
171,798
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
17,683
|
|
|
|
2,472
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Other Income/(Expenses)
|
|
|
257,855
|
|
|
|
169,326
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/(Expenses)
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
1
|
|
|
|
2
|
|
|
Unrealized gain/(loss)
|
|
|
618
|
|
|
|
1,415
|
|
|
Interest expense
|
|
|
(8,409
|
)
|
|
|
(5,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income/(Expenses)
|
|
|
(7,790
|
)
|
|
|
(3,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income before Provision for Income Taxes
|
|
|
250,065
|
|
|
|
165,371
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(77,720
|
)
|
|
|
(61,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
172,345
|
|
|
$
|
104,085
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED INCOME PER SHARE
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED
|
|
|
169,409,620
|
|
|
|
169,409,620
|
|
The accompanying notes are an intergral part of these consolidated financial statements
AMEXDRUG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
172,345
|
|
|
$
|
104,085
|
|
|
Adjustment to reconcile net income to net cash
used in operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
17,683
|
|
|
|
2,472
|
|
|
Unrealized (gain)/loss on investment
|
|
|
(618
|
)
|
|
|
(1,415
|
)
|
|
Allowance for doubtful accounts
|
|
|
0
|
|
|
|
-
|
|
|
Adjustment to retained earnings
|
|
|
-
|
|
|
|
-
|
|
|
Change in Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
(Increase) Decrease in:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(81,850
|
)
|
|
|
110,934
|
|
|
Inventory
|
|
|
(31,697
|
)
|
|
|
(215,612
|
)
|
|
Prepaid expenses
|
|
|
77,605
|
|
|
|
45,513
|
|
|
Deferred tax asset
|
|
|
-
|
|
|
|
8,009
|
|
|
Other assets
|
|
|
(422
|
)
|
|
|
(45,513
|
)
|
|
Increase (Decrease) in:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(310,744
|
)
|
|
|
(69,796
|
)
|
|
Deferred operating lease liability
|
|
|
(1,397
|
)
|
|
|
1,352
|
|
|
Deferred tax liability
|
|
|
(1,800
|
)
|
|
|
-
|
|
|
Corporate income tax payable
|
|
|
1,915
|
|
|
|
53,277
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(158,980
|
)
|
|
|
(6,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
1,261
|
|
|
|
-
|
|
|
Proceeds from the sale of investment
|
|
|
-
|
|
|
|
(2,028
|
)
|
|
Purchase of fixed assets
|
|
|
(2,397
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY INVESTING ACTIVITIES
|
|
|
(1,136
|
)
|
|
|
(2,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Payments on related party loans
|
|
|
-
|
|
|
|
(1,671
|
)
|
|
Payments on related party loans
|
|
|
-
|
|
|
|
-
|
|
|
Purchase of treasury stock
|
|
|
(1,235
|
)
|
|
|
(947
|
)
|
|
Proceeds from pronissory note
|
|
|
-
|
|
|
|
-
|
|
|
Payments on promissory note
|
|
|
(20,202
|
)
|
|
|
|
|
|
Proceeds from credit line
|
|
|
(108,437
|
)
|
|
|
(450,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY FINANCING ACTIVITIES
|
|
|
(129,874
|
)
|
|
|
(453,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(289,990
|
)
|
|
|
(461,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
|
415,962
|
|
|
|
589,472
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD
|
|
$
|
125,972
|
|
|
$
|
127,707
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
6,253
|
|
|
$
|
3,212
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
MARCH 31, 2013
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 three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. 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, 2012.
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 three months ended March 31, 2013, because there are no outstanding dilutive instruments.
3.
CAPITAL STOCK
During the three months ended March 31, 2013, 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 2009.
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.
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.
AMEXDRUG CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
MARCH 31, 2013
5.
BUSINESS SEGMENT INFORMATION (Continued)
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 March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
1,718,431
|
|
|
$
|
642,480
|
|
|
$
|
2,360,911
|
|
|
Depreciation and amortization
|
|
|
1,309
|
|
|
|
16,374
|
|
|
|
17,683
|
|
|
Segment income (loss) before taxes
|
|
|
93,357
|
|
|
|
156,708
|
|
|
|
250,065
|
|
|
Segment assets
|
|
|
631,667
|
|
|
|
1,506,222
|
|
|
|
2,137,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period ended March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
1,788,075
|
|
|
$
|
392,915
|
|
|
$
|
2,180,990
|
|
|
Depreciation and amortization
|
|
|
933
|
|
|
|
1,539
|
|
|
|
2,472
|
|
|
Segment income (loss) before taxes
|
|
|
64,258
|
|
|
|
101,113
|
|
|
|
165,371
|
|
|
Segment assets
|
|
|
679,594
|
|
|
|
554,783
|
|
|
|
1,234,377
|
|
6. SUBSEQUENT EVENT
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has determined there are no subsequent events to be reported.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company moved to a new facility and signed a new operating lease for three years as of March 1, 2011. The monthly lease payments per month are $7,600. There are future minimum rental payments required under the operating leases for the facility. The lease of the facility expires in 2014.
Legal Contingency
On March 19, 2013, the Company received notice of a claim filed by a vendor requesting an additional payment of $38,264 for a piece of equipment that was purchased by the Company. The Company has a counter claim filed against the vendor for misrepresentation about the performance of the piece of equipment purchased. The Company has retained counsel to aggressively defend the matter.
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 (323) 725-3100. Its fax number is (323) 725-3133. 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 fourteen 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 2013.
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 1,000,000,000 shares of authorized common stock $.001 par value, of which 169,409,620 are issued and outstanding as of March 31, 2013, including 300,440 shares held as treasury shares.
Forward Stock Split and Increase in Authorized Shares
The Company’s Board of Directors approved a 20 to 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 became effective on December 3, 2012. After giving effect to the 20 to 1 forward stock split, the number of outstanding shares of the Company’s common stock increased 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 became 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 report as though the forward stock split had already occurred. The effects of the 20 to 1 forward stock split have also been applied to any share amounts and price per share amounts appearing in this report.
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.
A total of fourteen innovative health and wellness products have been manufactured 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.
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 a significant amount of assets which would require audited financial statements of Dermagen, Inc.
Dermagen, Inc. is a growing manufacturing company specializing in the manufacturing and distribution of certain pharmaceuticals, medical devices, health and beauty products, and pharmacy and laboratory supplies. 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 excellent 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.
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 this location.. The rental amount increased from $7,700 per month 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 initially for a period of one year which commenced on March 1, 2011. In early 2012, and again in early 2013, the parties executed Amendments to extend the lease term for one year. The lease will now expire on February 28, 2014. 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. The Company does not have written contracts with its major suppliers or buyers. The Company has a written line of credit agreement with National Bank of California. 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. Manufacturing includes expertise in research and development for health care industry products, including pharmacy supplies.
Results of Operations
Revenues
For the three months ended March 31, 2013, Amexdrug reported sales of $2,360,911, comprised of $1,718,431of sales from the Company’s pharmaceutical wholesale business of selling brand name and generic pharmaceutical products, and (OTC) health and beauty products, and $642,480 of sales of health and beauty products manufactured by the Company. This is $179,921 more than the $2,180,990of sales reported for the three months ended March 31, 2012 which was comprised primarily of $1,788,075 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 $392,915 of sales of health and beauty products manufactured by the Company. During the three month period ended March 31, 2013, Amexdrug experienced an increase in total sales due, in part, to
increased marketing efforts
.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2013 was $1,842,165, an increase of $21,815 from the $1,820,350 cost of goods sold for the three months ended March 31, 2012.
Gross Profit
During the three months ended March 31, 2013, gross profit increased by $158,106 to $518,746, or 22.0% of sales, from the $360,640, or 16.5% of sales, recorded for the three months ended March 31, 2012. The change in gross profit margin is largely attributable to a larger percentage of sales of higher gross margin products sold in 2013.
Expenses
Total operating expenses for the three months ended March 31, 2013, consisting entirely of selling, general and administrative expenses were $243,208, an increase of $54,366 from the total operating expenses of $188,842 recorded for the three months ended March 31, 2012. The increase in selling, general and administrative expense is primarily attributed to
increased marketing expenses and increased compensation paid to the Company’s President in the later period.
Net Income
During the three months ended March 31, 2013, Amexdrug experienced net income of $172,345, an increase of $68,260 from the $104,085 of net income recorded for the three months ended March 31, 2012. Amexdrug’s increase in net profits during the three month period ended March 31, 2013, is attributable largely to the larger gross profit generated from increased sales in the later period and to a larger percentage of sales of higher gross margin products sold in the later period.
Liquidity and Capital Resources – March 31, 2013
As of March 31, 2013, Amexdrug reported total current assets of $1,615,797, comprised primarily of cash and cash equivalents of $125,972, net accounts receivable of $640,419, and inventory of $832,633. Total assets as of March 31, 2013 were $2,137,889, which included total current assets, plus net property and equipment of $473,859, other deposits of $29,862, trademark of $606, and goodwill of $17,765.
Amexdrug’s liabilities as of March 31, 2013, consisted primarily of accounts payable of $387,094, note payable to related party of $108,023, business lines of credit of $589,405, deferred tax liability of $55,500 and promissory note, current portion of $58,370.
During the three months ended March 31, 2013, Amexdrug used $158,980 cash in operating activities compared to $6,694 cash used in operating activities in the three months ended March 31, 2012. The primary adjustments to reconcile net income to net cash used in operating activities during the first quarter of 2013 were as follows: an increase in accounts receivable of $81,850, an increase in inventory of $31,697, a decrease in accounts payable and accrued liabilities of $310,744, and a decrease in prepaid expenses of $77,605. Amexdrug had $125,972 in cash and cash equivalents at March 31, 2013. Operations have primarily been funded through net income and an increase in the credit line balances when needed. Management does not anticipate that Amexdrug will need to seek additional financing during the next twelve months.
Stock Repurchases
Between approximately June 2007 and March 31, 2013, Amexdrug repurchased a total of 300,440 post-split shares of its common stock at prices ranging from a low of $0.01 per share to a high of $0.15 per 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 2013.
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 March 31, 2013 and 2012, respectively. The Company has no current plans for any significant capital expenditures.
Critical Accounting Policies
In the notes to the audited consolidated financial statements for the year ended December 31, 2012, 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.
