<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1997
[ ] 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: 33-80659
COMPARE GENERIKS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-3289396
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
300 Oser Avenue
Hauppauge, New York
(Address of principal executive offices)
11788
(Zip Code)
(800) 342-6555
(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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Class Outstanding at August 4, 1997
Common Stock 3,890,000
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COMPARE GENERIKS, INC.
FORM 10-QSB
THREE MONTHS ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements:
Balance sheet ..........................................................................1
Statements of operations................................................................2
Statements of cash flows ...............................................................3
Notes to financial statements ..........................................................4-6
Item 2. Management's discussion and analysis
of financial condition and results of
operations ..........................................................................7
PART II - OTHER INFORMATION
Item 1. Legal proceedings ......................................................................8
SIGNATURES ...............................................................................................9
</TABLE>
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COMPARE GENERIKS, INC.
BALANCE SHEET
(Unaudited)
JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 580,366
Accounts receivable, net of $10,000 allowance
for doubtful accounts 1,000,674
Inventories 1,224,247
Prepaid expenses and other current assets 149,426
-----------
Total current assets 2,954,713
FURNITURE AND FIXTURES, net 53,507
INVESTMENT IN AVAILABLE FOR SALE SECURITIES 1,256,000
INTANGIBLE ASSETS, net 1,200,741
OTHER ASSETS 222,000
-----------
$ 5,686,961
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 482,352
Due to affiliate 1,182,677
Dividend payable 75,000
-----------
1,740,029
===========
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, authorized
25,000,000 shares; 3,890,000 issued and
outstanding 389
Preferred stock, Class A, $.0001 par value;
authorized 10,000,000 shares; 5,000,000 issued
and outstanding 500
Preferred stock, Class B, $.0001 par value;
authorized 10,000,000 shares; 500,000 issued
and outstanding 50
Additional paid-in capital 5,273,344
Accumulated deficit (1,385,351)
Unrealized holding gain on available-for-sale securities 63,000
-----------
3,951,932
Less stock subscription receivable (5,000)
-----------
3,946,932
-----------
$ 5,686,961
===========
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COMPARE GENERIKS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30, 1997 June 30, 1996
------------- -------------
NET SALES $ 2,291,846 $ 508,458
----------- -----------
COSTS AND EXPENSES:
Cost of sales 1,053,463 252,839
Selling, general and
administrative 1,174,585 423,078
----------- -----------
2,228,048 675,917
----------- -----------
OPERATING INCOME/(LOSS) 63,798 (167,459)
INTEREST INCOME, net 6,938 20,812
----------- -----------
EARNINGS/(LOSS) BEFORE PROVISION
FOR INCOME TAXES 70,736 (146,647)
PROVISION FOR INCOME TAXES 2,300 --
----------- -----------
NET EARNINGS/(LOSS) $ 68,436 $ (146,647)
=========== ===========
NET EARNINGS/(LOSS) PER SHARE $ .01 $ (.04)
=========== ===========
WEIGHTED AVERAGE
NUMBER OF SHARES
OF COMMON STOCK
OUTSTANDING 3,890,000 3,756,667
=========== ===========
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COMPARE GENERIKS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 68,436 $ (146,647)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Amortization and depreciation 99,299 109,997
Changes in operating assets and liabilities:
(Increase) in assets:
Accounts receivable (393,725) 124,337
Inventories (581,825) (207,853)
Prepaid expenses and other current assets 16,214 (83,556)
Other assets (3,500) (138,750)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 386,186 27,189
Due to affiliate 102,258 (179,050)
----------- -----------
Total adjustments (375,093) (347,686)
----------- -----------
Net cash used in operating activities (306,657) (494,333)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture and fixtures (3,462) (17,456)
Acquisition of investment in available-for-sale securities -- (100,000)
Acquisition of intangible assets -- (22,469)
----------- -----------
Net cash used in investing activities (3,462) (139,925)
----------- -----------
Net decrease in cash and cash equivalents (310,119) (634,258)
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period 890,485 2,047,473
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CASH AND CASH EQUIVALENTS, end of period $ 580,366 $ 1,413,215
=========== ===========
</TABLE>
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COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1997
1. Basis of Presentation:
The interim financial statements furnished reflect all adjustments
which are, in the opinion of management, necessary to present a fair statement
of the financial position and results of operations for the three month periods
ended June 30, 1997 and 1996. The financial statements should be read in
conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's Form 10-KSB for the fiscal year
ended March 31, 1997. The results of operations for the three months ended June
30, 1997 are not necessarily indicative of the results to be expected for the
full year.
2. Concentration of Credit Risk:
Financial instruments which potentially expose the Company to credit
risk, as defined by Statement of Financial Accounting Standard No. 105 ("FAS
105"), consists primarily of trade accounts receivable. Wholesale distributors
of dietary supplements and over-the-counter pharmaceuticals account for a
substantial portion of trade receivables. The risk associated with this
concentration is limited due to the large number of distributors and their
geographic dispersion.
3. Inventories:
Inventories, consisting principally of finished goods at June 30, 1997
have been estimated using the gross profit method.
4. Investment in Available-For-Sale Securities:
In May 1996, the Company acquired 500,000 shares of common stock of
Superior Supplements, Inc. ("Superior") for $100,000 cash and the issuance of
200,000 shares of common stock (valued at $1,050,000).
At June 30, 1997, available-for-sale securities consisted of the
following:
Unrealized
Investment Gain
---------- ----------
Cost $1,150,000 $ --
Unrealized gain 106,000 106,000
Deferred tax liability -- (43,000)
---------- ----------
$1,256,000 $ 63,000
========== ==========
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COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1997
(Continued)
5. Income Taxes:
At June 30, 1997, the Company had net operating loss carryforwards
("NOLs") of approximately $1,102,000 available to offset against future Federal
income tax liabilities.
Net deferred income tax asset (liability) is composed of the following
at June 30, 1997:
Net operating loss carryforward $ 441,000
Unrealized holding gain on available-for-sale securities (43,000)
Intangible assets 134,000
Other 20,000
Valuation allowance (552,000)
---------
$ -
=========
The provision for income tax at June 30, 1997 reflects state franchise
taxes.
6. Stockholders' Equity:
a. Net earnings/(loss) per share
Net earnings/(loss) per share is computed by dividing the net
earnings/(loss) by the weighted average number of common shares and equivalents
outstanding during the period. Series B preferred stockholders are entitled to
cumulative annual dividends at $.12 per share, payable one year from the date of
issuance. Dividends earned for the three month period ended June 30, 1997
totaled $15,000.
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COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1997
(Continued)
6. Stockholders' Equity: (Continued)
Three Months Ended
June 30,
(Unaudited)
1997 1996
----------- -----------
Net earnings (loss) $ 68,436 $ (146,647)
Dividends 15,000 --
----------- -----------
Earnings/loss available to common
shareholders 53,436 (146,647)
----------- -----------
Weighted average number
of shares 3,890,000 3,756,667
----------- -----------
Earnings (loss) per share $ .01 $ (.04)
=========== ===========
7. Commitments:
On March 24, 1997, the Company entered into an exclusive supply and
licensing agreement with PDK, pursuant to which PDK granted the Company an
exclusive license to use the trademarks "Max Brand" and "Heads Up" brands of
OTCs and the exclusive right to distribute products bearing such names. In
consideration for this Agreement, the Company agreed to pay an annual license
fee of $500,000 to PDK. This fee is payable, at the option of the Company,
either in cash or in shares of the Company's common stock. Included in selling,
general and administrative expenses is $125,000 of this license fee for the
three months ended June 30, 1997.
On May 5, 1997, the Company entered into a two year Marketing Agreement
with a non-affiliated pharmaceutical distributor (the "distributor"), under
which the distributor will market the Company's "Max Brand" and "Heads Up"
products. As consideration for their services, the distributor will earn a
marketing fee equal to the difference between (i) the sales price of the
products sold and (ii) an amount equal to 200% of the material cost of the
products, as defined. The marketing fee is payable monthly.
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COMPARE GENERIKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales, derived primarily from convenience stores and drug chains
were approximately $2,292,000 and $508,000 for the three month periods ended
June 30, 1997 and 1996 respectively. The increase in sales is principally
attributable to the Company entering into an Exclusive Supply and Licensing
Agreement with PDK Labs Inc. ("PDK"), whereby PDK granted the Company an
exclusive license to use the trademarks "Max Brand" and "Heads Up" and the
exclusive right to distribute products bearing such names. Gross profit for the
three month periods ended June 30, 1997 and 1996 approximated $1,238,000 (54% of
sales) and $256,000 (50% of sales), respectively. The increase in gross profit
is attributable to sales of "Max Brand" and "Heads Up" products which yield
higher gross profits.
Selling, general and administrative expenses approximated $1,175,000
(51% of sales) and $423,000 (83% of sales) for the three month periods ended
June 30, 1997 and 1996, respectively. The overall decrease as a percentage of
sales is attributable to sales growth exceeding increases in marketing costs
incurred in connection with the Company entering into a marketing agreement with
a non-affiliated pharmaceutical distributor (the "distributor") dated May 5,
1997. Pursuant to this Agreement, the distributor will market the Company's "Max
Brand" and "Heads Up" products for a period of two years, renewable for
successive periods of one year. The distributor earns a marketing fee equal to
the difference between (i) the price of the products sold and (ii) an amount
equal to 200% of the material cost of the products, as defined.
On March 24, 1997, the Company entered into an exclusive supply and
licensing agreement with PDK, pursuant to which PDK granted the Company an
exclusive license to use the trademarks "Max Brand" and "Heads Up" brands of
OTCs and the exclusive right to distribute products bearing such names. In
consideration for this Agreement, the Company agreed to pay an annual license
fee of $500,000 to PDK. This fee is payable, at the option of the Company,
either in cash or in shares of the Company's common stock. Included in selling,
general and administrative expenses is $125,000 of this license fee for the
three months ended June 30, 1997.
Liquidity and Capital Resources
As of June 30, 1997, the Company had working capital of approximately
$1,215,000.
The Company's statement of cash flows reflects cash used in operating
activities of approximately $307,000 primarily due to increases in operating
assets such as accounts receivable ($394,000) and inventories ($582,000) offset
by an increase in accounts payable of ($386,000), due to affiliate ($102,000)
and an adjustment for depreciation and amortization expense of ($99,000).
The statement also reflects cash used in investing activities of
approximately $3,400 which reflects the acquisition of furniture and fixtures.
The Company expects to meet its cash requirements from operations and
current cash reserves.
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<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There is no material litigation pending or threatened against the
Company nor are there any such proceedings to which the Company is a party.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPARE GENERIKS, INC.
Dated: August 13, 1997 By: /s/Thomas A. Keith
----------------------------
Thomas A. Keith
President and Chief
Executive Officer
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 580,366
<SECURITIES> 0
<RECEIVABLES> 1,010,674
<ALLOWANCES> 10,000
<INVENTORY> 1,224,247
<CURRENT-ASSETS> 2,954,713
<PP&E> 60,254
<DEPRECIATION> 6,747
<TOTAL-ASSETS> 5,686,961
<CURRENT-LIABILITIES> 1,740,029
<BONDS> 0
0
550
<COMMON> 389
<OTHER-SE> 3,945,993
<TOTAL-LIABILITY-AND-EQUITY> 5,686,961
<SALES> 2,291,846
<TOTAL-REVENUES> 2,291,846
<CGS> 1,053,463
<TOTAL-COSTS> 1,053,463
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70,736
<INCOME-TAX> 2,300
<INCOME-CONTINUING> 68,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,436
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
