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, 1998
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
May 6, 1998:
Common Stock 13,020,155 shares
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AMERICAN DRUG COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets-
March 31, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1998 and 1997 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 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 9
Part II. Other Information 10
Signatures 11
<PAGE>
4
PART I. FINANCIAL INFORMATION
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 127 $ 225
Accounts receivable, trade 130 139
Inventory (finished goods) 98 149
Prepaid expenses and other current assets 1 1
--------- ---------
Total current assets 356 514
-------- -------
Property, plant and equipment, at cost 113 113
Less accumulated depreciation (113) (113)
--------- -------
Other assets 151 38
---------- ---------
$ 507 $ 552
========= ======
* The Consolidated Condensed Balance Sheet as of December 31, 1997 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)
March 31, December 31,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Customers' deposits 23 $ 8
Accounts payable and accrued expenses 23 191
--------- --------
Total current liabilities 46 199
--------- --------
7% convertible notes 500 1,000
-------- -------
Long-term debt and other obligations to GP Strategies 4,608 3,933
------- -------
Stockholders' equity (deficiency)
Common stock 130 130
Capital in excess of par value 2,092 1,762
Deficit (6,869) (6,472)
-------- --------
Total stockholders' deficiency (4,647) (4,580)
-------- --------
$ 507 $ 552
========= =========
* The Consolidated Condensed Balance Sheet as of December 31, 1997 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 STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months ended
March 31,
1998 1997
-------- -------
Revenues
Sales $ 142 $ 69
Consulting fees and commissions 25 107
--------- -------
Total revenues 167 176
--------- -------
Expenses
Cost of goods sold 121 58
General & administrative expenses 232 367
Management fee to GP Strategies 30 30
Interest expense 92 91
--------- ---------
Total expenses 475 546
--------- --------
Loss before extraordinary item (308) (370)
Extraordinary item
Early extinguishment of debt (89)
Net loss $ (397) $ (370)
-------- -------
Basic and diluted loss per share, before
extraordinary item $ (.02) $ (.03)
Basic and diluted loss per share (.03) (.03)
-------- -------
Weighted average shares outstanding 13,020 13,020
======= =======
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three months
ended March 31,
1998 1997
Cash flows from operations:
Net loss $ (397) $ (370)
Adjustments to reconcile net loss
to net cash used in operating activities:
Loss from extinguishment of debt 89
Depreciation and amortization 2 9
Changes in other operating items:
Accounts receivable, trade 9 (100)
Inventory 51 (19)
Prepaid expenses (6)
Customers' deposits, accounts payable
and other (27) (42)
--------- -------
Net cash used in operations (273) (528)
-------- ------
Cash flows from investing activities:
Additions to other assets (1)
Net cash used in investing activities (1)
Cash flows from financing activities:
Loans from GP Strategies 175 165
--------- -------
Net cash provided by financing activities 175 165
--------- -------
Net decrease in cash (98) (364)
Cash at beginning of period 225 586
--------- -------
Cash at end of period $ 127 $ 222
======== =======
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Earnings per share
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), as required, and restated the previously reported earnings per share in
conformity with SFAS 128.
2. Long-term debt and subsequent event
On March 17, 1998 and April 2, 1998, the Company was informed by
holders of an aggregate of $1,000,000 of the Company's convertible notes (the
"Notes") that they had elected to convert $1,000,000 of the Notes into 82,306
shares of GP Strategies Corporation ("GP Strategies") common stock. In
accordance with the terms of the original agreement the Company and GP
Strategies had agreed that if the Notes were used to exercise the warrants
issued by GP Strategies in connection with the Note offering, GP Strategies had
the right to 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.
On April 30, l998, the Company and GP Strategies agreed that instead of
issuing additional shares of the Company's common stock, the Company would
assign to GP Strategies its expected future payments in the amount of
approximately $1,000,000 from ICF Kaiser International as a success fee in
connection with the completion of the Company's consulting project in the Czech
Republic, which is anticipated to be completed in l999.
3. Liquidity
The Company has incurred losses since inception, and at March 31, 1998
had a capital deficiency of $4,647,000. At March 31, 1998, the Company had
$127,000 of cash. As of March 31, 1998, the Company had borrowed $4,108,000 from
GP Strategies. The indebtedness was comprised of (i) $2,500,000 pursuant to a
$2,500,000 loan agreement with GP Strategies, (ii) cash advances from GP
Strategies totaling $783,000, and (iii) accrued interest of $825,000 at the
prime rate. In addition, as a result of the conversion of $500,000 of the 7%
convertible notes and the amendment of the agreement with GP Strategies (See
Note 2), the Company has recorded a $500,000 obligation to GP Strategies,
representing their requirement to remit to GP Strategies the first $500,000 of
proceeds expected to be received from ICF Kaiser International in relation to a
contingent success fee. The Company believes it can satisfy its working capital
needs through its operating activities, as a result of reductions to their level
of operations and their renewed focus on consulting activities and the sales of
medical equipment. There is no assurance, however, that the Company will have
sufficient working capital to support operations. In this event, the Company
will be forced to further curtail its operations or seek alternate sources of
financing.
<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.
Despite some initial success, sales of the Company's generic products
declined significantly in 1997. The Company's inability to maintain and expand
sales may be attributed, in part, to deficiencies in the Russian distribution
system. Additionally, the Company did not compete effectively against
international manufacturers of brand name products, which were able to invest
large sums into marketing and distribution in the expectation of long term
rewards.
At the end of 1997, the Company made the decision to concentrate on
consulting and the marketing and sales of medical equipment and related
products, such as hospital furniture and laboratory supplies and to withdraw
from the generic pharmaceutical and over-the-counter (OTC) healthcare product
business because of significantly declining sales of generic products. Sales
activity with respect to generic drugs will be undertaken solely through the
Russian company Akorta. The Company established a relationship with Akorta to
provide support for the importation, clearance and sales of its products. Akorta
has the legal authority to sell products for Russian rubles and transfer those
funds, in dollars, to the Company in the United states. Akorta is a private
company owned by former employees of the Company's Moscow office. In the
short-term, the Company will sell its existing inventory of generic products in
Moscow warehouses through Akorta and other third parties. No additional products
will be purchased in the United States.
Liquidity and Capital Resources
At March 31, 1998, the Company had cash of $127,000 and the Company had
borrowed $2,500,000 pursuant to its $2,500,000 loan agreement from GP
Strategies. 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, GP Strategies continued to fund the operating needs of the Company
until July 1996.
As of March 31, 1998, the Company had borrowed $4,108,000 from GP
Strategies. The indebtedness was comprised of (i) $2,500,000 pursuant to a
$2,500,000 loan agreement with GP Strategies, (ii) cash advances from GP
Strategies totaling $783,000, and (iii) accrued interest at the prime rate
totaling $825,000. In addition, as a result of the conversion of $500,000 of the
7% convertible notes and the amendment of the agreement with GP Strategies (See
Note 2), the Company has recorded a $500,000 obligation to GP Strategies,
representing their requirement to remit to GP Strategies the first $500,000 of
proceeds expected to be received from ICF Kaiser International in relation to a
contingent success fee.
At March 31, 1998, the Company had no additional borrowing capacity
available under the GP Strategies Loan Agreement.
Historically, the Company's revenues, prior to 1994, were derived
primarily from the consulting fees and commissions of its subsidiary, NPD
Trading, which had been earned principally on a contingency fee basis. The
contingency fee payment structure has affected the Company's liquidity and
results of operations because the Company became entitled to payment only upon
successful completion of a business venture.
The Company believes it can satisfy its working capital needs through
its operating activities, as a result of reductions to their level of operations
and their renewed focus on consulting activities and the sales of medical
equipment. There is no assurance, however, that the Company will have sufficient
working capital to support operations. In this event, the Company will be forced
to further curtail its operations or seek alternate sources of financing.
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, 1998 Compared to Quarter Ended March 31, 1997
Revenues. In the quarter ended March 31, 1998, the Company had revenues
of approximately $167,000 as compared to revenues of approximately $176,000 for
the quarter ended March 31, 1997. The decrease in revenues of $9,000 was
primarily due to reduced consulting revenues offset by the increase in 1998 in
sales of medical equipment and generic drugs in the Commonwealth of Independent
States. The sales of medical equipment and generic drugs, resulted in $21,000 of
gross margin in the first quarter of 1998, compared to $11,000 of gross margin
in the first quarter of 1997.
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 $232,000 in the first quarter of 1998 from $367,000 in the
first quarter of 1997. This decrease in general and administrative expenses in
1998 was primarily due to reduced personnel and facility costs in Moscow and
Washington, D.C.
Net Loss. The Company's net loss before extraordinary item decreased to
$282,000 for the first quarter of 1998 from $370,000 in the first quarter of
1997. The reduced loss for the quarter ended March 31, 1998 was the result of
reduced general and administrative expenses.
Recent tax and accounting development
The Financial Accounting Standards Board issued Accounting Standards
(SFAS 130), "Reporting Comprehensive Income", in June 1997 which requires a
statement of comprehensive income to be included in the financial statements for
fiscal years beginning after December 15, 1997. The Company has adopted this
Statement and has no other comprehensive income, therefore comprehensive income
is the same as net income (loss).
In addition, in June of 1997, the FASB issued SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information'. SFAS 131 requires
disclosure of certain information about operating segments and about products
and services, geographic areas in which a company operates and their major
customers. The Company is presently in the process of evaluating the effect that
this new standard will have on disclosures in the Company's financial
statements.
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
March 31, 1998
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.
<PAGE>
AMERICAN DRUG COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
b. Reports on Form 8-K
None
<PAGE>
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 15, 1998 BY: /s/ Martin M. Pollak
--------------------
Martin M. Pollak
President
DATE: May 15, 1998 BY: /s/ Scott N. Greenberg
----------------------
Scott N. Greenberg
Chief Financial Officer
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<PERIOD-END> MAR-31-1998
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<ALLOWANCES> 80
<INVENTORY> 98
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