UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended September 30, 1996
or
[ ] 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: 033-78252
AMERICAN DRUG COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3729186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip code)
(212) 230-9500
(Registrant's telephone number, including area code)
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______
Number of shares outstanding of each of issuer's classes of
common stock as of November 12, 1996:
Common Stock 13,020,155 shares
AMERICAN DRUG COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
September 30, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Operations-
Three Months and Nine Months Ended September 30,
1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Qualification Relating to Financial Information 9
Part II. Other Information 10
Signatures 11
PART I. FINANCIAL INFORMATION
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
1996 1995
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 917 $ 66
Accounts receivable, trade 151 104
Inventory (finished goods) 239 329
Prepaid expenses and other current
assets 32 51
Total current assets 1,339 550
Machinery and equipment, at cost 111 108
Less accumulated depreciation (101) (86)
10 22
Organization costs (net of accumulated
amortization of $33 and $21,
respectively) 17 29
Deferred financing costs 48
Other assets 1 1
$1,415 $ 602
* The Consolidated Condensed Balance Sheet as of December 31,
1995 has been summarized from the Company's audited Consolidated
Balance Sheet as of that date.
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
September 30, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' DEFICIENCY (unaudited) *
Current liabilities
Customers' deposits $ $ 236
Accounts payable and accrued expenses 87 120
Total current liabilities 87 356
7% Convertible note 1,000
Long-term debt to National Patent 3,607 2,633
Stockholders' deficiency
Common stock 130 130
Capital in excess of par value 1,682 1,682
Deficit (5,072) (4,117)
Deferred compensation (19) (82)
Total stockholders' deficiency (3,279) (2,387)
$ 1,415 $ 602
* The Consolidated Condensed Balance Sheet as of December 31,
1995 has been summarized from the Company's audited Consolidated
Balance sheet as of that date
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months ended Nine Months ended
September 30, September 30,
1996 1995 1996 1995
Revenues
Sales $ 144 $ 206 $ 756 $ 242
Consulting fees and commissions
184 34 308 121
Total revenues 328 240 1,064 363
Expenses
Cost of goods sold 78 109 527 129
General & administrative
expenses 420 455 1,182 1,219
Management fee to National
Patent 30 30 90 90
Interest expense to
National Patent 68 5 202 111
Interest expense 18 18
Total expenses 61 644 2,019 1,549
Net loss $ (286) $ (404) $ (955) $(1,186)
Net loss per share $ (.02) $ (.03) $ (.07) $ (.09)
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine months
ended September 30,
1996 1995
Cash flows from operations:
Net loss $ (955) $ (1,186)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 29 32
Deferred compensation 63 63
Changes in other operating items (207) (238)
Net cash used in operations (1,070) (1,329)
Cash flows from investing activities:
Additions to machinery and equipment (3) (4)
Net cash used in investing activities (3) (4)
Cash flows from financing activities:
Net proceeds from 7% Convertible note 950
Loans from National Patent 974 1,384
Net cash provided by financing activities 1,924 1,384
Net increase in cash 851 51
Cash at beginning of period 66 60
Cash at end of period $ 917 $ 111
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Long-term debt
In July 1996, the Company issued a convertible note (the
"Note") in the principal amount of $1,000,000 in a private
offering (the "Offering"). The Company received net proceeds of
$950,000 from the Offering. The Note matures on June 30, 2001,
bears interest at the rate of 7% per annum, and is convertible
into shares of common stock of the Company at a conversion price
of $.25 per share. In connection with the Offering, National
Patent Development Corporation (National Patent) issued warrants
to purchase an aggregate of 82,306 shares of National Patent
common stock, exercisable at a price of $12.15 per share,
provided that the warrants may only be exercised utilizing the
Note. In the event that the closing price of the common stock of
the Company is at least $1.00 per share for at least 20
consecutive trading days, the Notes shall be subject to
redemption at the election of the Company, at a redemption price
of 100% of the principal amount called for redemption, together
with accrued interest.
The Company and National Patent have agreed that (i) if the
Notes are used to exercise the warrants prior to a default on the
Notes, National Patent will receive from the Company, in exchange
for the Notes shares of the Company's common stock at a price
equal to 60% of its then current market value, and (ii) if the
Notes are used to exercise the warrants after a default on the
Notes, National Patent will receive from the Company, in exchange
for the Notes shares of the Company's common stock at a price
equal to 25% of its then current market value.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company commenced operations in January 1990 as NPD
Trading (USA), Inc., which is now its wholly-owned subsidiary.
Since its inception, the Company has focused on assisting western
business to develop trade, manufacturing and investment
opportunities in Russia, the Czech and Slovak Republics and to a
lesser extent, other countries of the CIS. In late 1993, the
Company began the implementation of its plan for the export of
American-made generic prescription drugs and over-the-counter
health care products in both Russia and the CIS. The Company
received regulatory approvals in 1994 to market certain of its
products. The Company's strategy in 1995 and thereafter is to
focus its efforts and resources on marketing and distribution in
the generic pharmaceutical business, over the counter
pharmaceuticals and the sale of medical equipment.
Liquidity and Capital Resources
At September 30, 1996, the Company had cash of $917,000 and
the Company had borrowed the full $2.5 million provided for under
its loan agreement from National Patent. These proceeds were to
be used as part of the Company's working capital. Such
borrowings bear interest at the prime rate, with principal and
accrued interest due on August 5, 1999.
National Patent had agreed to continue funding the Company
through September 30, 1996 pursuant to the same terms and
conditions as the existing loan agreement. As of September 30,
1996, the Company had borrowed $3,222,000 from National Patent
and had incurred interest of $385,000.
Based upon the proceeds from the $1,000,000 Convertible Note
(See Note 1) the Company believes that it will have sufficient
cash and cash equivalents to satisfy its cash requirements
through December 31, 1996. There can be no assurance that the
Company will be able to raise additional capital or that the
terms of such transactions will be favorable.
The Company does not manufacture, and does not anticipate
manufacturing, any of its products. As a consequence, the
Company has not made, and does not anticipate making, any major
capital expenditures.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations
Quarter Ended September 30, 1996 Compared to Quarter Ended
September 30, 1995
Revenues. In the quarter ended September 30, 1996, the
Company had revenues of approximately $328,000 as compared to
revenues of approximately $240,000 for the quarter ended
September 30, 1995. The increase in revenues of $88,000 was due
primarily to increased consulting fees. The increased consulting
revenues are primarily attributable to a contract between ICF
Kaiser, Inc. and the Company's NPD Trading, Inc. subsidiary.
General and Administrative Expenses. General and
administrative expenses consist primarily of office rent,
salaries, travel and related costs and legal expenses. Direct
costs relating to consulting revenues are included in general and
administrative expenses. The Company's general and
administrative expenses decreased from $455,000 in the third
quarter of 1995 to $420,000 in the third quarter of 1996. This
decrease in general and administrative expenses in 1996 was due
principally to the start up expenses incurred in 1995 for the
implementation of the Company's plan to export American-made
generic pharmaceutical products.
Net Loss. The Company's net loss was reduced to $286,000
for the third quarter of 1996 from $404,000 in the third quarter
of 1995. The reduced loss for the quarter ended September 30,
1996, was the result of increased revenues and reduced general
and administrative expenses in the third quarter of 1996,
partially offset by increased interest expense incurred under the
loan agreement with National Patent in 1996, as well as interest
incurred on the Convertible Note.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Nine Months Ended September 30, 1996 Compared to Nine Months
Ended September 30, 1995
Revenues. For the nine months ended September 30, 1996, the
Company had revenues of approximately $1,064,000, compared to
revenues of approximately $363,000 for the nine months ended
September 30, 1995. The increase in revenues of $701,000 was due
to the sale of medical equipment and generic drugs in the
Commonwealth of Independent States, as well as increased
consulting revenue. The increased consulting revenues are
primarily attributable to a contract between ICF Kaiser, Inc. and
the Company's NPD Trading, Inc. subsidiary.
General and Administrative Expenses. General and
administrative expenses consist primarily of office rent,
salaries, travel and related costs and legal expenses. Direct
costs relating to consulting revenues are included in general and
administrative expenses. The Company's general and
administrative expenses decreased from $1,219,000 for the nine
months ended September 30, 1995 to $1,182,000 for the nine months
ended September 30, 1996 principally due to the start up expenses
incurred in 1995 for the implementation of the Company's plan to
export American-made generic pharmaceutical products.
Net Loss. The Company's net loss decreased to $955,000 for
the nine months of 1996 from $1,186,000 for the nine months of
1995 due to the increased revenues and reduced general and
administrative expenses, partially offset by increased interest
expense incurred under the loan agreement with National Patent,
as well as interest incurred on the Convertible Note.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
September 30, 1996
The financial information included herein is unaudited. In
addition, the financial information does not include all
disclosures required under generally accepted accounting
principles because certain note information included in the
Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary to a fair statement of the results for the interim
periods. The results for the 1996 interim period are not
necessarily indicative of results to be expected for the entire
year.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
AMERICAN DRUG COMPANY AND SUBSIDIARIES
September 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed in
its behalf by the undersigned thereunto duly authorized.
AMERICAN DRUG COMPANY
DATE: November 14, 1996 BY: Martin M. Pollak
President &
Chief Executive Officer
DATE: November 14, 1996 BY: Scott N. Greenberg
Chief Financial Officer
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