ITEM 1. BUSINESS
Business Development
History
Amexdrug Corporation, a Nevada corporation, is a holding company. It 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.
We do not plan to introduce any new skin care over the counter (OTC) and natural products in 2012. We presently market fourteen 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.
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 1,000,000,000 shares of authorized common stock $.001 par value, of which 169,409,620 are issued and outstanding, including 293,440 shares held as treasury shares.
Forward Stock Split and Increase in Authorized Shares
The Company’s Board of Directors has 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, 2013. 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 annual 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 annual report.
Significant acquisitions
BioRx Pharmaceuticals
On November 8, 2004, Amexdrug formed a new subsidiary, BioRx Pharmaceuticals, Inc. as a Nevada corporation. BioRx Pharmaceuticals, Inc. is a wholesale manufacturer of cost saving pharmacy supplies, prescription packaging and skin care, hair and nail care products. BioRx manufactures, markets and distributes products to wholesalers, distributors and independent pharmacies. We expect to grow sales to drugstore chains in the near future. BioRX 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, manufacture and distribute 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 will be 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 pharmacies, other retailers, 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. was not considered to be an acquisition of a significant amount of assets which would have required 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 has provided 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, and also pharmacy and laboratory supplies. Manufacturing includes expertise in research and development for the healthcare industry, including pharmacy and laboratory supplies.
Industry trends
Pharmaceutical and healthcare markets
According to IMS Health, the U.S. will remain the single largest pharmaceutical market. It forecasted 3-5% growth in 2011. Pharmaceutical sales in the U.S. were projected to reach $320 to $330 billion, up form an estimated $310 billion in 2010. The Company was unable to locate data confirming the amount of growth which actually occurred in 2011 or 2012. Sales are 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;
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new patterns of drug lifestyle management, resulting in higher
sales occurring earlier in the life cycle of a medication;
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increased money spent on direct-to-consumer marketing
initiatives;
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an unprecedented period of investment by pharmaceutical
companies worldwide;
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divergent growth rates expected for developed markets;
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peak years of patent expiries shift major therapies to generic dominance; and
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therapy growth dynamics allow promising new wave of innovation for new treatment options.
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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. 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 wholesale manufacturer and distributor of pharmacy and laboratory supplies, and a leading full-line 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:
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market its name, products and services to create brand
recognition and generate and capture traffic on its websites;
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provide quality products at competitive prices and efficient
service;
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develop strategic relationships that increase Amexdrug’s
product offerings; and
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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.
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:
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developing co-marketing agreements with major online sites and
services;
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enhancing online content and ease of use of its website;
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enhancing customer service and technical support;
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advertising in trade journals and at industry trade shows;
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conducting an ongoing public relations campaign; and
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developing other business alliances and partnerships.
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Distribution
The Company distributes its Allied Med products from its facility in Commerce, 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 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;
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devote greater resources to marketing and promotional
campaigns; and
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adopt more aggressive pricing or inventory availability
policies.
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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:
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breadth and depth of product offerings;
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brand recognition;
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depth of existing customer base; and
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ease of use and convenience.
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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, pharmacy and laboratory supplies 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:
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the establishment of a recognizable brand;
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the development of online marketing and media relationships;
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the development of important relationships with manufacturers, distributors, wholesalers and content providers; and
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exposure to an existing customer base.
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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:
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brand recognition
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customer service
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speed and accessibility
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reliability and speed of fulfillment
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quality of site content
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price
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convenience
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selection
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Government regulations and legal uncertainties
Healthcare regulation
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.
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:
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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
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physicians from making referrals to certain entities with
which they have a financial relationship.
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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.
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
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:
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user privacy
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distribution
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pricing
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taxation
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content
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characteristics and quality of products
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copyrights
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services
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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.
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 from time to time. Total research and development costs were $0 and $0 for the years ended December 31, 2012 and 2011, respectively. Amexdrug anticipates that it likely will not incur any research and development costs in 2013.
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, 2012, purchases from two suppliers accounted for 64% and 17% of total purchases, respectively. Accounts payable to these two suppliers accounted for 42% and 19% of the total accounts payable balance as of December 31, 2012, respectively. During the year ended December 31, 2011, purchases from the same two suppliers accounted for 79% and 14% of our total purchases, respectively. Accounts payable to these two suppliers accounted for 75% and 13% of the total accounts payable balance as of December 31, 2011. 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
One customer accounted for 10% or more of our sales during the year ended December 31, 2012. That customer accounted for approximately 10% of our 2012 sales and 15% of our 2011 sales.
Employees
The Company currently employs nine full time and four part time employees. In addition, the Company uses the services of three independent contractors. 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 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 Company paid a rental rate of $7,700 per month during the year ended December 31, 2012. The rental amount increased 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 $2,499.20 per month. The lease was amended in early 2012, and again in early 2013, each time to extend the lease term for a period of 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.
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.
Acquisition of 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.
Amexdrug assumed the operations of Allied med, and Amexdrug has been building on the wholesale pharmaceutical operations of Allied Med.
Asset acquisitions following the acquisition of Allied Med, Inc.
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 growing manufacturing company specializing in the manufacturing and distribution of certain pharmaceuticals, medical devices, health and beauty products, and pharmacy and laboratory supplies. 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.
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 anew subsidiary,BioRx Pharmaceuticals, Inc. as a Nevada corporation. BioRx Pharmaceuticals, Inc.’s expertise lies in the manufacturing of pharmacy supplies and in conducting research and development of products for the healthcare industry. BioRx manufactures, develops distributes effective pharmaceuticals and cosmeceuticals, OTC products, and natural care products for the foot, nails, hair and for arthritis. Currently, BioRx Pharmaceuticals, Inc. has assets, liabilities, and operations.
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.
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.
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:
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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
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Stockholders cannot call a special meeting of stockholders unless they, in the aggregate, hold at least 10% of our common stock.
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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:
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make a special suitability determination for purchasers of penny stocks;
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receive the purchaser's written consent to the transaction prior to the purchase; and
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deliver to a prospective purchaser of a penny stock, prior to the first transaction, a risk disclosure document relating to the penny stock market.
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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.
