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 March 31, 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
requiredto 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 May 9, 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-
March 31, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Qualification Relating to Financial Information 8
Part II. Other Information 9
Signatures 10
PART I. FINANCIAL INFORMATION
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1996 1995
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 22 $ 66
Accounts receivable, trade 196 104
Inventory (finished goods) 234 329
Prepaid expenses and other current assets 9 51
Total current assets 461 550
Property, plant and equipment, at cost 109 108
Less accumulated depreciation (94) (86)
15 22
Organization costs (net of accumulated
amortization of $24 and $21,
respectively) 26 29
Other assets - 1
$ 502 $ 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)
March 31, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Customers' deposits $ - $ 236
Accounts payable and accrued expenses 133 120
Total current liabilities 133 356
Long-term debt to National Patent 3,073 2,633
Stockholders' equity (deficiency)
Common stock 130 130
Capital in excess of par value 1,682 1,682
Deficit (4,455) (4,117)
Deferred compensation (61) (82)
Total stockholders' deficiency (2,704) (2,387
$ 502 $ 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
March 31,
1996 1995
Revenues
Sales $ 503 $ 25
Consulting fees and commissions 21 55
Total revenues 524 80
Expenses
Cost of goods sold 366 15
General & administrative expenses 410 372
Management fee to National Patent 30 30
Interest expense to National Patent 56 25
Total expenses 862 442
Net loss $ (338) $ (362)
Net loss per share $ (.03) $ (.03)
Weighted average shares outstanding 13,020 13,018
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three months
ended March 31,
1996 1995
Cash flows from operations:
Net loss $ (338) $ (362)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 11 10
Deferred compensation 21 21
Changes in other operating items:
Accounts receivable, trade (92) -
Inventory 95 (68)
Prepaid expenses 42 -
Customers' deposits, accounts payable
and other (222) (47)
Net cash used in operations (483) (446)
Cash flows from investing activities:
Additions to machinery and equipment (1) (2)
Net cash used in investing activities (1) (2)
Cash flows from financing activities:
Loans from National Patent 440 511
Net cash provided by financing
activities 440 511
Net (decrease) increase in cash (44) 63
Cash at beginning of period 66 60
Cash at end of period $ 22 $ 123
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Loans and advances from National Patent
In August 1994, National Patent agreed to sell to NPD Trading (USA),
Inc., a wholly-owned subsidiary of the Company ("NPD Trading"), an
aggregate of $2.5 million of registered common stock of National Patent,
GTS Duratek, Inc., a currently 31% owned investment of National Patent
("Duratek") or Interferon Sciences, Inc., a company in which National
Patent has a 22% investment ("ISI"), or a combination thereof, to be
determined at National Patent's discretion, which securities National
Patent agreed to register, at its own expense, and deliver within a 24-
month period commencing November 7, 1994, as requested by the Company.
The purchase price per share of such common stock will be its fair
market value as determined by the closing price of the issue on the
National Securities Exchange or quotation medium upon which it is then
listed on the business day immediately preceding the purchase. In lieu
of securities at its option, National Patent may advance cash.
NPD Trading will purchase these equity securities from time to time by
issuing a note to National Patent (the "Note"). Borrowings under the
Note will be made from time to time by NPD Trading as it purchases
shares of the securities, and the principal and accrued interest thereon
at the prime rate will be due on August 5, 1999. NPD Trading intends to
sell all of such securities immediately after the purchase thereof and
to advance the proceeds of such sales to the Company for use as working
capital. Although National Patent registered shares of its common
stock, which can be used in partial satisfaction of its obligations
under the loan agreement, National Patent elected to make all cash
advances to the Company during 1994. During 1995 and 1996, National
Patent partially satisfied its funding obligations from proceeds from
sales of approximately 46,000 shares of National Patent Common Stock on
behalf of the Company in the aggregate amount of $427,000. At March 31,
1996, the Company borrowed the full $2,500,000. Such amount, together
with accrued interest thereon of $238,000, is due on August 5, 1999.
National Patent has agreed to continue funding the Company through June
30, 1996 pursuant to the same terms and conditions as the above loan
agreement. National Patent will evaluate its future funding commitments
to the Company on a quarterly basis. As of March 31, 1996, the Company
had borrowed an additional $335,000 from National Patent.
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 healthcare products in
both Russia and the CIS. The Company received certain regulatory approvals in
1994 and 1995 to market its products. The Company's strategy is to focus its
efforts and resources, in 1996 and thereafter, on marketing and distribution
in the generic pharmaceutical business, over the counter pharmaceuticals and
the sale of medical equipment.
Liquidity and Capital Resources
At March 31, 1996, the Company had cash of $22,000 and the Company had
borrowed the full $2.5 million under its loan agreement from National Patent
These proceeds were to be used as part of the Company's working capital. The
proceeds received under the loan agreement were derived from the sale of
registered shares of National Patent Common Stock, which totaled approximately
$427,000, and a cash loan. Such borrowings will bear interest at the prime
rate, with principal and accrued interest, which totaled $238,000 at December
31, 1995, becoming due on August 5, 1999.
National Patent has agreed to continue funding the Company through June
31, 1996 pursuant to the same terms and conditions as the above loan
agreement. National Patent will evaluate its future funding commitments to
the Company on a quarterly basis. As of March 31, 1996, the Company had
borrowed $2,835,000 from National Patent and had incurred interest of
$238,000. The Company is attempting to secure a bank credit facility, issue
debt or issue additional equity securities to meet its working capital needs.
If the Company is unable to raise additional capital, it could be forced to
delay, scale back or eliminate certain activities. In addition, there is no
assurance that the terms of such transactions will be favorable to the
Company.
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.
Results of Operations
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
Revenues. In the quarter ended March 31, 1996, the Company had revenues
of approximately $524,000 as compared to revenues of approximately $80,000 for
the quarter ended March 31, 1995. The increase in revenues of $444,000 was
primarily due to the increase of $478,000 to $503,000 in 1996 in sales of
medical equipment and generic drugs in the Commonwealth of Independent States
offset by decreased consulting fees of $34,000. The sales of medical
equipment and generic drugs, which had a cost of sales of $366,000, resulted
in $137,000 of gross margin in the first quarter of 1996.
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 increased to $410,000 in the first quarter of 1996
from $372,000 in the first quarter of 1996. This increase in general and
administrative expenses in 1996 was due to the continued addition by the
Company of certain personnel required to commence the implementation of the
Company's plan to export American-made generic pharmaceutical products.
Net Loss. The Company's net loss decreased to $338,000 for the first
quarter of 1996 from $362,000 in the first quarter of 1995. The sales in the
first quarter of 1996, generating a gross profit of $137,000 offset by higher
general and administrative expenses accounted for this decrease in net loss.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31, 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 interim
periods 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
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: May 13, 1996 Martin M. Pollak
President
DATE: May 13, 1996 Scott N. Greenberg
Vice President, Chief
Financial Officer
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