<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 September 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 November 6, 1997
------------ -------------------------------
Common Stock 3,890,000
<PAGE>
COMPARE GENERIKS, INC.
FORM 10-QSB
SIX MONTHS ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
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 .................................................7-8
PART II - OTHER INFORMATION
Item 1. Legal proceedings ...............................................9
SIGNATURES ...............................................................10
<PAGE>
COMPARE GENERIKS, INC.
BALANCE SHEET
(Unaudited)
SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 114,493
Accounts receivable, net of $10,000 allowance
for doubtful accounts 931,429
Inventories 1,397,850
Prepaid expenses and other current assets 201,710
Deferred tax asset 29,000
-----------
Total current assets 2,674,482
-----------
FURNITURE AND FIXTURES, net 56,254
INVESTMENT IN AVAILABLE FOR SALE SECURITIES 1,256,000
INTANGIBLE ASSETS, net 1,103,552
DEFERRED TAX ASSET 74,100
OTHER ASSETS 273,000
-----------
$ 5,437,388
LIABILITIES AND STOCKHOLDERS' EQUITY ===========
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 509,919
Due to affiliate 836,496
Dividend payable 5,000
-----------
Total current liabilities 1,351,415
-----------
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 (1,246,310)
Unrealized holding gain on available-for-sale securities 63,000
-----------
4,090,973
Less stock subscription receivable (5,000)
-----------
4,085,973
-----------
$ 5,437,388
===========
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<PAGE>
COMPARE GENERIKS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 4,420,652 $ 975,845 $ 2,128,806 $ 467,387
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,057,965 491,731 1,004,502 238,892
Selling, general and
administrative 2,244,929 934,978 1,070,344 511,900
----------- ----------- ----------- -----------
4,302,894 1,426,709 2,074,846 750,792
----------- ----------- ----------- -----------
OPERATING INCOME/(LOSS) 117,758 (450,864) 53,960 (283,405)
INTEREST INCOME, net 8,719 29,101 1,781 8,289
----------- ----------- ----------- -----------
EARNINGS/(LOSS) BEFORE
INCOME TAX BENEFIT 126,477 (421,763) 55,741 (275,116)
INCOME TAX BENEFIT (96,000) -- (98,300) --
----------- ----------- ----------- -----------
NET EARNINGS/(LOSS) $ 222,477 $ (421,763) $ 154,041 (275,116)
=========== =========== =========== ===========
NET EARNINGS/(LOSS)
PER SHARE $ .05 $ (.11) $ .04 $ (.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF SHARES
OF COMMON STOCK
OUTSTANDING 3,890,000 3,823,333 3,890,000 3,890,000
=========== =========== =========== ===========
</TABLE>
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<PAGE>
COMPARE GENERIKS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 222,477 $ (421,763)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Amortization and depreciation 198,721 210,861
Deferred income tax benefit (103,100) --
Changes in operating assets and liabilities:
(Increase) in assets:
Accounts receivable (324,480) (182,170)
Inventories (755,428) (265,200)
Prepaid expenses and other current assets (36,070) (118,811)
Other assets (54,500) (125,200)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 413,753 79,178
Due to affiliate (243,923) 16,013
----------- -----------
Total adjustments (905,027) (385,329)
----------- -----------
Net cash used in operating activities (682,550) (807,092)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments -- (873,326)
Acquisition of furniture and fixtures (8,442) (48,430)
Investment in Superior Supplements, Inc. -- (100,000)
Acquisition of intangible assets -- (23,528)
----------- -----------
Net cash used in investing activities (8,442) (1,045,284)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (85,000) --
----------- -----------
Net cash used in financing activities (85,000) --
----------- -----------
Net decrease in cash and cash equivalents (775,992) (1,852,376)
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period 890,485 2,047,473
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 114,493 $ 195,097
=========== ===========
</TABLE>
-3-
<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 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 six and three month
periods ended September 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 six and
three months ended September 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 September 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 September 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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<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 30, 1997
(Continued)
5. Income Taxes:
At September 30, 1997, the Company had net operating loss carryforwards
("NOLs") of approximately $972,000 available to offset against future Federal
income tax liabilities.
Net deferred income tax asset (liability) is composed of the following
at September 30, 1997:
Net operating loss carryforward $ 390,000
Unrealized holding gain on available-for-sale securities (43,000)
Intangible assets 155,000
Other 10,000
Valuation allowance (409,000)
---------
$ 103,000
=========
6. Stockholders' Equity:
a. Net earnings/(loss) per share
Net earnings/(loss) per share is computed by dividing the net
earnings/(loss) available to common shareholders 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 six
month period ended September 30, 1997 totaled $30,000.
-5-
<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 30, 1997
(Continued)
6. Stockholders' Equity: (Continued)
Net earnings (loss) available to common shareholders was computed as
follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 222,477 $ (421,763) $ 154,041 $ (275,116)
Dividends 30,000 -- 15,000 --
----------- ----------- ----------- -----------
Earnings/loss available to common
shareholders $ 192,477 $ (421,763) $ 139,041 $ (275,116)
----------- ----------- ----------- -----------
Weighted average number
of shares 3,890,000 3,823,333 3,890,000 3,890,000
----------- ----------- ----------- -----------
Earnings (loss) per share $ .05 $ (.11) $ .04 $ (.07)
=========== =========== =========== ===========
</TABLE>
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 $250,000 of this license fee for the six
months ended September 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.
-6-
<PAGE>
COMPARE GENERIKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the six and three month periods ended September 30, 1997,
derived primarily from convenience stores and drug chains, were approximately
$4,421,000 and $2,129,000 respectively, as compared to $976,000 and $467,000 in
the corresponding periods. 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 six and three month periods
ended September 30, 1997 approximated $2,363,000 (53% of sales) and $1,124,000
(53% of sales) respectively, as compared to $484,000 (50% of sales) and $228,000
(49% of sales) in the corresponding periods in the prior year. 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 $2,245,000
and $1,070,000 for the six and three month periods ended September 30, 1997,
respectively. As a percentage of sales, these amounts represent 51% and 50%
respectively, as compared to 96% and 110% in the corresponding periods in the
prior year. 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
marketing 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 $250,000 of this license fee for the six
months ended September 30, 1997.
-7-
<PAGE>
COMPARE GENERIKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
As of September 30, 1997, the Company had working capital of
approximately $1,323,000.
The Company's statement of cash flows reflects cash used in operating
activities of approximately $683,000, primarily due to increases in operating
assets such as accounts receivable ($324,000), inventories ($755,000), prepaid
expenses and other current assets ($36,000), and other assets ($55,000) and a
decrease in due to affiliate ($244,000) offset by net earnings of approximately
$222,000, an increase in accounts payable and accrued expenses ($414,000), an
adjustment for deferred taxes ($103,000) and an adjustment for depreciation and
amortization expense ($199,000).
The statement also reflects cash used in investing activities of
approximately $8,400 which reflects the acquisition of furniture and fixtures.
Net cash used in financing activities approximated $85,000 representing
payment of cash dividends ($85,000).
The Company expects to meet its cash requirements from operations and
current cash reserves.
-8-
<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.
-9-
<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: November 12, 1997 By: /s/ Thomas A. Keith
-----------------------------
Thomas A. Keith
President and Chief
Executive Officer
Chief Financial Officer
-10-
<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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 114,493
<SECURITIES> 0
<RECEIVABLES> 941,429
<ALLOWANCES> 10,000
<INVENTORY> 1,397,850
<CURRENT-ASSETS> 2,674,482
<PP&E> 65,234
<DEPRECIATION> 8,980
<TOTAL-ASSETS> 5,437,388
<CURRENT-LIABILITIES> 1,351,415
<BONDS> 0
0
550
<COMMON> 389
<OTHER-SE> 4,085,034
<TOTAL-LIABILITY-AND-EQUITY> 5,437,388
<SALES> 4,420,652
<TOTAL-REVENUES> 4,420,652
<CGS> 2,057,965
<TOTAL-COSTS> 2,057,965
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 126,477
<INCOME-TAX> (96,000)
<INCOME-CONTINUING> 222,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,477
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
