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, 1997
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 13, 1997:
Common Stock 13,020,155 shares
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
September 30, 1997 and December 31, 1996 1
Consolidated Condensed Statements of Operations-
Three Months and Nine Months Ended September 30,
1997 and 1996 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Qualification Relating to Financial Information 8
Part II. Other Information 9
Signatures 10
<PAGE>
PART I. FINANCIAL INFORMATION
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
ASSETS unaudited) *
Current assets
Cash and cash equivalents $ 517 $ 586
Accounts receivable, trade 87 84
Inventory (finished goods) 225 326
Prepaid expenses and other current assets 22
---------- --------
Total current assets 829 1,018
------- -------
Machinery and equipment, at cost 113 113
Less accumulated depreciation (113) (103)
------- --------
10
Organization costs (net of accumulated
amortization of $50 and $37
respectively) 13
Deferred financing costs 39 46
Other assets 2 1
--------- ---------
$ 870 $1,088
====== ======
* The Consolidated Condensed Balance Sheet as of December 31, 1996 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
September 30, December 31,
1997 1996
(unaudited) *
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Customers' deposits $ 28
Accounts payable and accrued expenses 91 124
-------- -------
Total current liabilities 91 152
-------- -------
7% Convertible note 1,000 1,000
------- -------
Long-term debt to National Patent 3,758 3,739
------- ------
Stockholders' deficiency
Common stock 130 130
Capital in excess of par value 1,682 1,682
Deficit (5,791) (5,615)
------- -------
Total stockholders' deficiency (3,979) (3,803)
------- ------
$ 870 $ 1,088
======== =======
* The Consolidated Condensed Balance Sheet as of December 31, 1996 has been
summarized from the Company's audited Consolidated Balance sheet as of that date
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<CAPTION>
Three months ended Nine Months ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- ------
Revenues
<S> <C> <C> <C> <C>
Sales $ 531 $ 144 $ 887 $ 756
Consulting fees and commissions
184 967 308
------- -------- ------- ------
Total revenues 531 328 1,854 1,064
------- ------ ------ ------
Expenses
Cost of goods sold 399 78 658 527
General & administrative
expenses 256 420 1,004 1,182
Management fee to National
Patent 30 30 90 90
Interest expense 93 86 278 220
------- --------- --------- ----------
Total expenses 778 614 2,030 2,019
------- ------- ------- -------
Net loss $ (247) $ (286) $ (176) $ (955)
======= ======= ======= =======
Net loss per share $ (.02) $ (.02) $ (.01) $ (.07)
======= ======== ======== ========
Weighted average shares outstanding 13,020 13,020 13,020 13,020
======= ======= ======= =======
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine months
ended September 30,
1997 1996
Cash flows from operations:
Net loss $ (176) $ (955)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 30 29
Deferred compensation 63
Changes in other operating items 58 (207)
------- --------
Net cash used in operations (88) (1,070)
------- -------
Cash flows from investing activities:
Additions to machinery and equipment (3)
Net cash used in investing activities (3)
Cash flows from financing activities:
Net proceeds from 7% Convertible note 950
Repayment of loan to National Patent (600)
Loans from National Patent 619 974
------- -------
Net cash provided by financing activities 19 1,924
------- ------
Net increase (decrease) in cash (69) 851
Cash at beginning of period 586 66
------- ---------
Cash at end of period $ 517 $ 917
======= =======
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
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 and
has received certain regulatory approvals in 1994, 1995 and 1996 to market its
products.
Liquidity and Capital Resources
At September 30, 1997, the Company had cash of $517,000 and the Company
had borrowed $2,500,000 pursuant to its $2,500,000 loan agreement from National
Patent. These proceeds were used as part of the Company's working capital. Such
borrowings bear interest at the prime rate, with principal and accrued interest
becoming due on August 5, 1999. In addition, after the Company had borrowed the
full $2,500,000 under the loan agreement during the first quarter of 1996,
National Patent continued to fund the operating needs of the Company until July
1996.
In July 1996, the Company issued 7% convertible notes in the principal
amount of $1,000,000 in a private offering; the net proceeds to the Company were
$950,000. National Patent has agreed to fund the Company through December 31,
1997, if necessary, pursuant to the same terms and conditions as the $2,500,000
loan agreement. National Patent will evaluate its future funding commitments to
the Company on a quarterly basis. As of September 30, 1997, the Company had
borrowed $3,758,000 from National Patent reduced from $4,057,000 at June 30,
1997. The indebtedness was comprised of (i) $2,500,000 pursuant to a $2,500,000
loan agreement with National Patent, (ii) cash advances from National Patent
totaling $575,000, and (iii) accrued interest at the prime rate totaling
$683,000. The Company is attempting to secure a bank credit facility, issue
additional 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 or all activities. In addition,
there is no assurance that the terms of any such transactions will be favorable
to the Company.
<PAGE>
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 Operation
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
Revenues. In the quarter ended September 30, 1997, the Company had
revenues of approximately $531,000 as compared to revenues of approximately
$328,000 for the quarter ended September 30, 1996. The increase in revenues of
$203,000 was primarily due to increased sales of medical equipment and generic
drugs in the Commonwealth of Independent States. The sales of medical equipment
and generic drugs, resulted in $132,000 of gross margin in the third quarter of
1997, compared to $66,000 of gross margin in the third 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 decreased to $256,000 in the third quarter of 1997 from $420,000 in the
third quarter of 1996. This decrease in general and administrative expenses in
1997 was primarily due to reduced consulting and personnel costs.
Net Income. The Company's loss was $247,000 for the third quarter of
1997 as compared to a loss of $286,000 in the third quarter of 1996. The reduced
loss for the quarter ended September 30, 1997 was primarily the result of
reduced general and administrative expenses and increased sales and the
corresponding gross profit, partially offset by reduced consulting revenue for
the quarter.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Revenues. For the nine months ended September 30, 1997, the Company had
revenues of approximately $1,854,000, compared to revenues of approximately
$1,064,000 for the nine months ended September 30, 1996. The increase in
revenues of $790,000 was primarily due to $860,000 in the form of a success fee
related to a project with ICF Kaiser International in the Czech Republic
partially offset by reduced sales of medical equipment and generic drugs in the
Commonwealth of Independent States. The sales of medical equipment and generic
drugs resulted in $229,000 of gross margin for the nine months ended September
30, 1997, compared to $229,000 for the nine months ended September 30, 1996.
<PAGE>
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 $1,182,000 for the nine months ended September 30, 1996
to $1,004,000 for the nine months ended September 30, 1997 as a result of
reduced consulting and personnel costs, partially offset by costs associated
with consulting projects.
Net Loss. The Company had a loss of $176,000 for the nine months ended
September 30, 1997 compared to a loss of $955,000 for the first nine months of
1996, due to increased consulting revenues and reduced general and
administrative expenses, partially offset by increased interest expense.
Recent accounting pronouncement
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128), was issued. SFAS No. 128 simplifies the
standards for computing earnings per share, and makes the United States
standards for computing earnings per share more comparable to international
standards. SFAS No. 128 requires presentation of "basic" earnings per share
(which excludes dilution) and "diluted" earnings per share. The Company does not
believe the adoption of SFAS No. 128 in fiscal 1997 will have a material impact
on the Company's reported earnings per share. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior period earnings per share presented.
Forward-Looking Statements. This report contains certain forward-looking
statements reflecting management's current views with respect to future events
and financial performance. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements, including, but not
limited to the Company's ability to reverse its history of operating losses; the
Company's ability to fund its operations; and the Company's ability to secure
additional financing on acceptable terms.
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
September 30, 1997
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 1997
interim period are not necessarily indicative of results to be expected for the
entire year.
<PAGE>
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
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
September 30, 1997
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, 1997 BY: Martin M. Pollak
President &
Chief Executive Officer
DATE: November 14, 1997 BY: Scott N. Greenberg
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922408
<NAME> AMERICAN DRUG COMPANY
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 517
<SECURITIES> 0
<RECEIVABLES> 87
<ALLOWANCES> 40
<INVENTORY> 225
<CURRENT-ASSETS> 829
<PP&E> 113
<DEPRECIATION> 113
<TOTAL-ASSETS> 870
<CURRENT-LIABILITIES> 91
<BONDS> 1000
0
0
<COMMON> 130
<OTHER-SE> (4,109)
<TOTAL-LIABILITY-AND-EQUITY> 870
<SALES> 887
<TOTAL-REVENUES> 1,854
<CGS> 658
<TOTAL-COSTS> 2,030
<OTHER-EXPENSES> 1,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> (176)
<INCOME-TAX> 0
<INCOME-CONTINUING> (176)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
