<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 December 31, 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 February 3, 1998
------------ -------------------------------
Common Stock 3,890,000
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COMPARE GENERIKS, INC.
-----------------------
FORM 10-QSB
-----------
NINE MONTHS ENDED DECEMBER 31, 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)
DECEMBER 31, 1997
-----------------
ASSETS
- -------
CURRENT ASSETS:
Cash and cash equivalents $ 281,928
Accounts receivable, net of $10,000 allowance
for doubtful accounts 595,893
Inventories 3,121,969
Prepaid expenses and other current assets 151,447
Deferred tax asset 24,250
-----------
Total current assets 4,175,487
-----------
PROPERTY AND EQUIPMENT, net 54,084
INVESTMENT IN AVAILABLE FOR SALE SECURITIES 1,256,000
INTANGIBLE ASSETS, net 1,007,016
DEFERRED TAX ASSET 69,750
OTHER ASSETS 250,000
-----------
$ 6,812,337
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 664,695
Due to affiliate 2,015,713
Dividend payable 20,000
-----------
Total current liabilities 2,700,408
-----------
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 (1,220,354)
Unrealized holding gain on available-for-sale securities 63,000
-----------
4,116,929
Less stock subscription receivable (5,000)
-----------
4,111,929
-----------
$ 6,812,337
===========
-1-
<PAGE>
COMPARE GENERIKS, INC.
----------------------
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
December 31, December 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $6,503,625 $1,414,749 $2,082,973 $ 438,904
----------- ----------- ----------- ----------
COSTS AND EXPENSES:
Cost of sales 2,886,635 795,725 828,670 303,994
Selling, general and
administrative 3,448,588 1,578,859 1,203,659 643,881
----------- ----------- ----------- ----------
6,335,223 2,374,584 2,032,329 947,875
----------- ----------- ----------- ----------
OPERATING INCOME/(LOSS) 168,402 (959,835) 50,644 (508,971)
INTEREST INCOME/(EXPENSE), net 8,131 45,182 (588) 16,081
----------- ----------- ----------- ----------
EARNINGS/(LOSS) BEFORE
PROVISION FOR INCOME TAXES 176,533 (914,653) 50,056 (492,890)
(BENEFIT)/PROVISION FOR
INCOME TAXES (86,900) - 9,100 -
----------- ----------- ----------- -----------
NET EARNINGS/(LOSS) $ 263,433 $ (914,653) $ 40,956 $ (492,890)
=========== =========== ========== ==========
NET EARNINGS/(LOSS)
PER COMMON SHARE $ .06 $ (.25) $ .01 $ (.13)
=========== =========== ========== ==========
WEIGHTED AVERAGE
NUMBER OF SHARES
OF COMMON STOCK
OUTSTANDING 3,890,000 3,845,636 3,890,000 3,890,000
========== =========== ========= =========
</TABLE>
-2-
<PAGE>
COMPARE GENERIKS, INC.
----------------------
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
December 31,
------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 263,433 $ (914,653)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Amortization and depreciation 297,427 335,766
Deferred income tax benefit (94,000) --
Changes in operating assets and liabilities:
(Increase) in assets:
Accounts receivable 11,056 (205,069)
Inventories (2,479,547) (670,429)
Prepaid expenses and other current assets 14,193 (47,019)
Other assets (31,500) (98,500)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 568,529 677,245
Due to affiliate 935,294 (210,699)
----------- -----------
Total adjustments (778,548) (218,705)
----------- -----------
Net cash used in operating activities (515,115) (1,133,358)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (8,442) (51,143)
Investment in Superior Supplements, Inc. -- (100,000)
Acquisition of intangible assets -- (30,939)
----------- -----------
Net cash used in investing activities (8,442) (182,082)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (85,000) --
----------- -----------
Net cash used in financing activities (85,000) --
----------- -----------
Net decrease in cash and cash equivalents (608,557) (1,315,440)
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period 890,485 2,047,473
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 281,928 $ 732,033
=========== ===========
</TABLE>
-3-
<PAGE>
COMPARE GENERIKS, INC.
----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
-----------
NINE MONTHS ENDED DECEMBER 31, 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 nine and three month
periods ended December 31, 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 nine and
three months ended December 31, 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 December 31,
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 December 31, 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
========== ==========
-4-
<PAGE>
COMPARE GENERIKS, INC.
----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
-----------
NINE MONTHS ENDED DECEMBER 31, 1997
-----------------------------------
(Continued)
5. Income Taxes:
-------------
At December 31, 1997 the Company had net operating loss carryforwards
("NOLs") of approximately $863,000 available to offset against future Federal
income tax liabilities.
Net deferred income tax asset (liability) is composed of the following
at December 31, 1997:
Net operating loss carryforward $ 345,000
Unrealized holding gain on available-for-sale securities (43,000)
Intangible assets 175,000
Other 7,000
Valuation allowance (390,000)
---------
$ 94,000
=========
6. Stockholders' Equity:
---------------------
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No. 128, "Earnings Per Share". Earnings/(loss) per common share is
computed by dividing net earnings/(loss) less dividends on Series B preferred
shares by the weighted average number of common stock outstanding during the
period. The effect of common stock equivalents on the computation of earnings
per share is anti-dilutive. The loss per share was retroactively restated to
reflect FASB No. 128 for the nine and three month periods ended December 31,
1996.
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 nine month period ended December 31, 1997 totaled
$45,000.
-5-
<PAGE>
COMPARE GENERIKS, INC.
----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
-----------
NINE MONTHS ENDED DECEMBER 31, 1997
-----------------------------------
(Continued)
6. Stockholders' Equity: (Continued)
---------------------
Net earnings (loss) available to common shareholders was computed as
follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
------------------ ------------------
December 31, December 31,
------------ ------------
(Unaudited) (Unaudited)
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $ 263,433 $ (914,653) $ 40,956 $ (492,890)
Dividends 45,000 45,000 15,000 15,000
---------- ----------- ----------- ----------
Earnings/loss available to common
shareholders $ 218,433 $ (959,653) $ 25,956 $ (507,890)
---------- ------------ ----------- -----------
Weighted average number
of shares 3,890,000 3,845,636 3,890,000 3,890,000
---------- ----------- ----------- ----------
Earnings (loss) per common share $ .06 $ (.25) $ .01 $ (.13)
========== =========== =========== ==========
</TABLE>
7. Commitments:
------------
The Company is party to an exclusive supply and licensing agreement
with PDK Labs Inc. ("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 $375,000 of this license fee for the nine
months ended December 31, 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 markets the Company's "Max Brand" and "Heads Up" products.
As consideration for their services, the distributor earns 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 nine and three month periods ended December 31, 1997,
derived primarily from convenience stores and drug chains were approximately
$6,504,000 and $2,083,000 respectively, as compared to $1,415,000 and $439,000
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 nine and three
month periods ended December 31, 1997 approximated $3,617,000 (56% of sales) and
$1,254,000 (60% of sales) respectively, as compared to $619,000 (44% of sales)
and $135,000 (31% 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 $3,449,000
and $1,204,000 for the nine and three month periods ended December 31, 1997,
respectively. As a percentage of sales, these amounts represent 53% and 58%
respectively, as compared to 112% and 147% in the corresponding periods of the
prior year. The overall decrease as a percentage of sales is attributable to
sales growth exceeding increased 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 markets 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
OTC's 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 $375,000 of this license fee for the
nine months ended December 31, 1997.
Liquidity and Capital Resources
- --------------------------------
As of December 31, 1997, the Company had working capital of
approximately $1,475,000.
The Company's statement of cash flows reflects cash used in operating
activities of approximately $515,000, primarily due to increases in operating
assets such as inventories ($2,480,000) and
-7-
<PAGE>
COMPARE GENERIKS, INC.
----------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
other assets ($32,000) offset by net earnings of approximately $263,000 and
increases in operating payables such as accounts payable and accrued expenses
($569,000) and due to affiliate ($935,000), the deferred income tax benefit
($94,000) and an adjustment for depreciation and amortization expense
($297,000).
The statement also reflects cash used in investing activities of
approximately $8,400 which reflects the acquisition of property and equipment.
Net cash used in financing activities approximated $85,000 representing
payment of cash dividends.
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: February 6, 1998 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 281,928
<SECURITIES> 0
<RECEIVABLES> 605,893
<ALLOWANCES> 10,000
<INVENTORY> 3,121,969
<CURRENT-ASSETS> 4,175,487
<PP&E> 65,234
<DEPRECIATION> 11,150
<TOTAL-ASSETS> 6,812,337
<CURRENT-LIABILITIES> 2,700,408
<BONDS> 0
0
550
<COMMON> 389
<OTHER-SE> 4,110,990
<TOTAL-LIABILITY-AND-EQUITY> 6,812,337
<SALES> 6,503,625
<TOTAL-REVENUES> 6,503,625
<CGS> 2,886,635
<TOTAL-COSTS> 2,886,635
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 176,533
<INCOME-TAX> (86,900)
<INCOME-CONTINUING> 263,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 263,433
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
